Creative Learning Concepts is considering developing and distributing a new board game for children. The project is similar in risk to the firm's current operations. The firm maintains a debt-equity ratio of 0.40 and retains all profits to fund the firm's rapid growth. How should the firm determine its cost of equity? please explain reasoning
Answer
by adding the market risk premium to the after-tax cost of debt
by multiplying the market risk premium by (1 - 0.40)
by using the dividend growth model
by using the capital asset pricing model
by averaging the costs based on the dividend growth model and the capital asset pricing model