Sunny Co. is a 100% equity-financed AESOP Sub system Sunny Co. is a 100% equity-

Question

Sunny Co. is a 100% equity-financed AESOP Sub system Sunny Co. is a 100% equity-financed company (no debt or prf erred stock); hence, its WACC equals its cost of common equity. Sunny Co.'s retained eamings will be sulficient to fund its capital budget in the foreseeable future. The company has a beta of 1.35, the risk-free rate is 4.5%, and the market return is 5.9%. What is Sunny Co.'s cost of equity? 6.39% O 7.79% 19.61% 13.87% Sunny Co. is financed exdusively using equity funding and has a cost of equity of 13.05%. It is considering the following projects for investment next year: $19,825 $22,375 $11,275 $15,675 14.60% 13.10% 12. 1096 13.65% Each project has average risk, and Sunny Co, accepts any project whose expected rate of return exceeds its cost of capital. How large should next year's capital budget be? O $57,875 O $31,100 O $26,950 $38,050

Explanation / Answer

Projects with expected rate of return equal to more than the cost of capital will be accepted for investing. Hence, WX and Z are accepted.

19,825+22,375+15,675=57,875

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