Project Specific Cost of Equity

Hi,

This may sound a really silly query however I looked at it a couple of times but still could not spot the error and it made me think that the answer is wrong! 🙂 I have a couple of more questions which I will be posting separately. Thanks.

Anyway, here is my question:

(I got the part question right – which was to calculate asset beta)
The current risk-free rate of return is 4% and the average equity risk premium is 5%. Tax rate is 30%. Equity beta is 1.6.

I calculated asset beta as 0.895

putting all the values in CAPM equation:
4% + 0.895 (5% -4%)
= 4.89

However, solution is:
4% + (0.895 x 5%)
=8.5

Please can you clarify?

Thanks