Vertex Industries Ltd. is evaluating the cost of equity for its upcoming expansion project. The company's finance manager has collected the…

Cost of equity for Vertex Industries Ltd. Given: Rf = 5%, Rm = 10%, β = 2.0 Ke = Rf + β (Rm – Rf) Ke = 5% + 2.0 × (10% - 5%) Ke = 5% + 2.0 × 5% Ke = 5% + 10% = 15% Cost of equity for Competitor A and Competitor B Competitor A (β = 1.2): Ke = 5% + 1.2 × (10% - 5%) = 5% + 6% Ke = 11% Competitor B (β = 0.8): Ke = 5% + 0.8 × (10% - 5%) = 5% + 4% Ke = 9% Company Beta (β) Cost of Equity (Ke) Vertex Industries Ltd. 2.0 15% Competitor A 1.2 11% Competitor B 0.8 9% Vertex Industries (β = 2.0) has the highest cost of equity at 15%, indicating the highest systematic (market-related) risk among the three firms.