Question

Suppose that the British stock market is integrated with the rest of the world and Stansfield Company has made its shares tradable internationally via cross-listing on the NYSE. Using the CAPM and a risk-free rate of 5 percent, estimate the equity cost of capital for Stansfield. Correlation Coefficients Stansfield England World SD(%) R % Stansfield 1.00 0.90 0.60 England 1.00 0.80 World 15 1.00

Answer 1

with tradable Here, British Stock market is integrated rest of world : stansfield company shares ore internationally via evos usting That means, correlation bw stansfield and eest of wond should be taken. ie ar (stansfield, word) = 0.6 (given in question given, re= 5.1 CAPM equation : ke- ke - & VR + B (Ym vf). cost of equity capital. = ? Rist free interes trate : 5% senstivity = ? Retum on market (ie, world) = 121. (given in question B - Im - Te calculates :

TO calculak B absec ar (sec, mkt) Enkt Here, bec beca 6 Stanfield" Stanfield Stendard densation of Stansfield, mkt - world - Stendard denakon o world. er (stensheld, oond) 0.6 s(see, mkt) given, in question see = 2010 Enkt = 15.1. B= 20 x 0.6 K (ke) substituting, Bre, sm and is in Apm equation to calculate Cost of equity capite ke sf + B (m-rf - 570.8 (12-5) 5756 - 10.6% & please gue rating