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 (Treasury Bill) rate is 1.0 % and that the market rate is 6%. Required:
Beta for Colt's Fanwear is 1.6 per a reliable outside source. Using the CAPM what is the estimated required rate of return?