Prepare estimate of relative risk of mccormick and company

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An advisor to a board member who works at a private equity firm. He has told the CFO that sophisticated investors use a quick estimate of the cost of equity. She says that the cost of equity must logically be higher than the company's debt rate. The estimate is that 3% to 5% should be added to the company's long term interest rates. McCormick & Company estimates its current borrowing cost at 4%.

Question 1: Make your own estimate of the relative risk of McCormick & Company. Then, calculate the cost of equity (Rs) using this "own debt plus 3% to 5%" formula.

Reference no: EM132523027

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