home / study / business / finance / questions and answers / quick mart is a small convenience store in atlanta, ... Question: Quick Mart is a small convenience store in Atlanta... Quick Mart is a small convenience store in Atlanta, and is considering adding a donut shop in the store to serve its commuting customs’ breakfast. The managers have collected the following information on companies in the donut business: Comparable firm Beta Debt/Equity ratio Krispy Creme 1.2 0.2 Dunkin Donut 1.7 0.5 H&H 1.3 0.75 Note that the corporate tax rate is 34%, Quick Mart’s a target D/E ratio is 0.3, the market risk premium is 6%, and risk free rate: 5%. What can be the appropriate cost of equity for Quick Mart’s donut shop? Assume that the donut shop business has the same business risk as the average business risk of the comparable companies above (hint: use the levered beta equation).
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