. Anna is a Vice President at the J Corporation. The company is considering |
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investing in a new factory and Anna must decide whether it is a feasible |
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project. In order to assess the viability of the project, Anna must first calculate |
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the rate of return that equity holders expect from the company stock. The |
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annual returns for J Corp. and for a market index are given below. Currently, |
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the risk-free rate of return is 1.8% and the market risk-premium is 3.9%. |
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1) What is the beta of J Corp.'s stock? 2 decimal places
2) Using the CAPM model, what is the expected rate of return on J Corp. stock for the coming year?
(Round your answer to one one-hundreth of a percent)
Year |
J Corp. Return (%) |
Market Return (%) |
1 |
-1.83 |
-3.60 |
2 |
12.71 |
15.78 |
3 |
10.49 |
12.83 |
4 |
11.24 |
13.83 |
5 |
-6.41 |
-9.70 |
6 |
12.97 |
16.13 |
7 |
27.48 |
35.48 |
8 |
10.66 |
13.05 |
9 |
5.82 |
6.60 |
10 |
13.46 |
16.78 |
11 |
-3.36 |
-5.64 |
12 |
-0.40 |
-1.70 |
Refer to question 2 . now
3) Refer to Question 2. Now that Anna has determined an appropriate rate |
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of return for J Corp.'s stock, she must calculate the firm's Weighted Average |
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Cost of Capital (WACC). There are currently 58.7 Million |
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J Corp. common shares outstanding. Each share is currently priced at 7.34. As well as the firm has 7,000 bonds outstanding and each bond has a face value of 10,000 a yield to maturity of 3.78% and quoted price $10,878.30 J Corp |
Formulas used :-
(1)Beta =SLOPE(L313:L324,M313:M324)
(2) Expected return = Rf + Beta*Rp
= 1.8% + 0.75*3.9%
= 4.725%
(3)
cost of debt = 3.78%
Cost of Equity = 4.725%
Value of stock = 430858000
Value of bond = 108783000
WACC = ((3.78*108783000)+(4.725*430858000))/539641000
= 4.5345%
. Anna is a Vice President at the J Corporation. The company is considering investing in...
Anna is a Vice President at the J Corporation. The company is considering investing in a new factory and Anna must decide whether it is a feasible project. In order to assess the viability of the project, Anna must first calculate the rate of return that equity holders expect from the company stock. The annual returns for J Corp. and for a market index are given below. Currently, the risk-free rate of return is 2.2% and the market risk-premium is...
Here is the answer to a question in my assignment. I was wondering how he got the 82.5144/103.143, not sure how he got those numbers. Can anyone explain it in an excel format? Question 2 (3 Marks) Anna is a Vice President at the J Corporation. The company is considering investing in a new factory and Anna must decide whether it is a feasible project. In order to assess the viability of the project, Anna must first calculate the rate...