Question

- o x Sam Youngblood 8 Case Studies (2) - Saved File Home Insert Draw Formulas Data Review View B I U A A 3 ele q B 23 AL AL 47 0 Sensitivity J K L M N AB D Chapter 13 The Cost of Capital for Swan Motors Input area: Bond maturity 3/1/2019 3/1/2021 A A Book value 920,000,000 1,380,000,000 Price 94.347 92.625 YTM 2.028% 2.754% SA A A BV of debt BV of equity per share Stock price Shares outstanding Beta 3-month Treasury bill rate Market risk premium Tax rate (460,000,000 10.190 232.36 129,800,000 1.400 0.06% 7.00% 35% Output area: + Case Studies Chapter 8 Chapter 9 Chapter 10 Chapter 11 Chapter 13 OMIO O 09:20

How do you do these problems and can you worked them out on excel?

Answer 1

CAPM or Capital Asset Pricing model shows the relationship between expected return and systematic risk for assets, specially stocks/ equity.

1. - Not provided

2. ERi​=Rf​+βi​(ERm​−Rf​)

ERi​=expected return of investment

Rf​=risk-free rate

βi​=beta of the investment

(ERm​−Rf​)=market risk premium​

3. We can''t find Equity Weighted average Beta of the industry as Equity value is missing. Hence, calculating arithimatic average.

4. Information not complete

Book1 - Excel Divya Singh DS - x Comments Review View Help Search Share Σ AutoSum • === d AutoSave Of H Svo File Home Insert Page Layout Formulas Data X Cut Calibri 11 A A [Copy v Format Painter BIU - - - A - Clipboard Font G - XV fi A B C D u E alle Wrap Text Merge & Center - General v [9 - % 9 80 Paste Insert Delete Format Ideas Conditional Format as Cell Formatting Table Styles Clear Sort & Filter Find & Select Alignment Number L Cells Styles Editing Ideas Аз E F G H I J K N O P A Input Area Price Bond Maturity 03-01-2019 $ 03-01-2021 $ Book Value 92,00,00,000 13,80,000 YTM 94.347 92.625 2.028% 2.754% BV Debt BV of Equity per Share Stock Price Share Outstanding Beta 3 month treasury bill rate Market Risk Premium Tax Rate -46,00,00,000 10.19 232.36 12,98,00,000 1.400 0.06% 7.00% 35.00% Output Area Excel formulas Used 22 Re from CAPM 9.86% =D14+(D13*D15) Formula Used - ERi=Rf+Bi(ERm-Rf) 23 2) 24 25 3) 26 Company Ford General Motors Honda Toyota Fiat Chrysler Sheet1 Beta 0.97 1.44 0.74 0.54 0.49 28 29 30 Ready Average: 36954256.15 Count: 34 Sum: 591268098.4 + 100% O o Type here to search e - - _ 12:37 l ENG 20-03-2020 LM © 83% ^0 E20

	Output Area				Excel formulas Used
2)	Re from CAPM	9.86%	=D14+(D13*D15)]	Formula Used -	ERi​=Rf​+βi​(ERm​−Rf​)
3)	Company	Beta
	Ford	0.97
	General Motors	1.44
	Honda	0.74
	Toyota	0.54
	Fiat Chrysler	0.49
	Volksagen	1.97
	Daimler Chrysler	1.55
	Industry Average	1.10	=average(C26:C31)	Arithmatic Average
	Re with Industry Beta	7.76%	=D14+(C35*D15)	Formula is same as in point (2), except the Beta value which is taken from Industry average Beta
			Book Value	Percentage of Total	Quoted Price	Market Value (Quoted Price* Shares outstanding)	Percentage of Total	Yield To Maturity	Book Values	Market Values		Shares Outstanding as per Book Value of $10.19 (o/s shares = BV of Shares/ BV per share)
4)	03-01-2019	$	92,00,00,000	40%	94.347	8,51,80,80,471.05	40%	2.028%				90284592.74
	03-01-2021	$	1,38,00,00,000	60%	92.625	12,54,39,15,603.53	60%	2.754%				135426889.1
	Total		2,30,00,00,000	100%		21,06,19,96,074.58						225711481.8