Question: Biogen Inc., as biotechnology firm, had a beta of 1.70 in 1995. It had no debt outstanding at the end of that year.
a. Estimate the cost of equity for Biogen, if the treasury bond rate is 6.4%.
b. What effect will an increase in long term bond rates to 7.5% have on Biogen's cost of equity?
c. How much of Biogen's risk can be attributed to business risk?