13.You need to estimate the equity cost of capital for XYZ Corp. Unfortunately, you only have the following data available regarding past returns:
|Year||Risk-free Return||Market Return||XYZ Return|
Would you base your estimate of XYZ’s equity cost of capital on historical return or expected return?
Expected return because the CAPM provides a better estimate of expected returns.
Historical return because the average past returns provides a better estimate of expected returns.