To calculate the cost of equity for McCann Catching, Inc., we can use the Capital Asset Pricing Model (CAPM):
\[ \text{Cost of Equity} = R_f + \beta (R_m - R_f) \]
Where:
- \( R_f \) is the risk-free rate
- \( \beta \) is the firm's beta
- \( R_m - R_f \) is the market risk premium
Given values:
- \( R_f = 4.00% = 0.04 \)
- \( \beta = 1.30 \)
- Market Risk Premium \( (R_m - R_f) = 8.00% = 0.08 \)
Now, plug in the values into the formula:
\[ \text{Cost of Equity} = 0.04 + 1.30 \times 0.08 \] \[ = 0.04 + 0.104 \] \[ = 0.144 \]
Thus, the cost of equity is:
\[ \text{Cost of Equity} = 14.4% \]
Thus, the cost of equity for McCann Catching, Inc. is 14.4%.