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Estimated cost of existing equity for mark

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1. Mark Inc. is a privately held company, so there is no information about beta available. However, a company in the same business with a debt to equity ratio the same as that of Mark Inc. is publicly traded and has a beta of 1.25. If the risk-free rate is 3.8 percent, and the average market risk premium is 5.5 percent, what is the estimated cost of existing equity for Mark Inc.?

2. If a company has a beta of 1.8 and is considering a low risk project outside its normal course or business with a beta of 1.25, what beta should the company use? The 1.25 or the 1.8? Why?

Reference no: EM131412812

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