Spencers Magic Shows Incorporated Is Financed 100% with Equity and Intends

Spencers Magic Shows Incorporated is financed 100% with equity and intends to remain this way. Spencers' common stock beta is 0.85, the expected market return average market return) is 14%, and the risk-free rate is 6%. If all of Spencers' equity is internal, what are the cost of equity and the weighted average cost of capital for Spencers?

A) 12.80%
B) 5.48%
C) 14.00%
D) 13.10%

Correct Answer:

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