Pohio Incorporation is considering investing in a new business. An existing company in the target...
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Pohio Incorporation is considering investing in a new business. An existing company in the target industry has an equity beta of 1.25 but is financed with a market value, equity-to-value ratio 60%. Pohio Incorporation intends to use an equity-to-value ratio of 70% for this new business. Required: Estimate the beta to use in estimating a cost of equity in this new business. If the market risk premium is 6%, what is the cost of equity in percentage per year? The risk free rate is 4%.
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