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Colt's Fanwear Inc. is a publicly traded company that is planning on issuing new common shares to raise $10 million for expansion of the business. The company currently pays dividends of $2 per share, which represents a 3.5% yield on a market value basis. The pension plan of a local university is considering an investment in the new shares and the investment officers need to develop a required rate of return on such an investment using the CAPM. They believe the current risk free rate is 2% and that the market rate is 6%. Beta for Colt's Fanwear is 1.6 per a reliable outside source. Using the CAPM what is the estimated required rate of return?

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Financial Management, Finance

Category:- Financial Management
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