suppose that a financial analyst collectes the following data: rate of return on a T-bill is...
Homework Answers
a.As per DCF Approach
Stock Price = Expected Dividend/(Cost of Equity - growth rate)
30 = 2/(cost of Equity - 6%)
Cost of Equity = 12.67%
b.As per CAPM, cost of equity = risk free rate + beta*Market risk premium
= 2.5% + 0.7*5%
= 6%
c.The analyst should use DCF approach since it reflects the actual expectations of shareholders as reflecetd in market price
Add Answer to:
suppose that a financial analyst collectes the following data: rate
of return on a T-bill is...
The cost of equity using the CAPM approach The current risk-free rate of return (RF) is...
The cost of equity using the CAPM approach The current risk-free rate of return (RF) is 4.23%, while the market risk premium is 6.63%, the Burris Company has a beta of 0.92. Using the Capital Asset Pricing Model (CAPM) approach, Burris's cost of equity is The cost of equity using the bond yield plus risk premium approach The Lincoln Company is closely held and, therefore, cannot generate reliable inputs with which to use the CAPM method for estimating a company's...
Hello, please advise, thanks Question: Suppose you are an analyst with the following data: rRF =...
Hello, please advise, thanks Question: Suppose you are an analyst with the following data: rRF = 5.5% rM - rRF = 6% b=0.8 D1 = $1.00 P0 = $25.00 g = 6% firm's bond yield = 6.5% Please answer the following: 1.What is this firm's cost of equity using the CAPM? 10.30 2.What is this firm's cost of equity using the DCF? 10 3.What is this firm's cost of equity using the bond-yield-plus-risk-premium approach? Use the midrange of the judgmental...
Suppose you are an analyst with the following data: rRF = 5.5% rM – rRF =...
Suppose you are an analyst with the following data: rRF = 5.5% rM – rRF = 6% b=0.8 D1 = $1.00 P0 = $25.00 g = 6% firm’s bond yield = 6.5% a) What is this firm’s cost of equity using the DCF? b) What is this firm’s cost of equity using the bond-yield-plus-risk-premium approach? Use the midrange of the judgmental risk premium for the bond-yield-plus-risk-premium approach.
The cost of equity using the CAPM approach The current risk-free rate of return (TRF) is...
The cost of equity using the CAPM approach The current risk-free rate of return (TRF) is 4.67% while the market risk premium is 6.63%. The Jefferson Company has a beta of 0.92. Using the capital asset pricing model (CAPM) approach, Jefferson's cost of equity is 11.3085% The cost of equity using the bond yield plus risk premium approad 10.779 11.847% The Harrison Company is dosely held and, therefore, cannot generate relis cost of internal equity. Harrison's bonds yield 11.52%, and...
The cost of retained earnings the required rate of If a firm cannot invest retained earnings...
The cost of retained earnings the required rate of If a firm cannot invest retained earnings to earn a rate of return return on retained earnings, it should return those funds to its stockholders. The cost of equity using the CAPM approach The yield on a three-month T-bill is 3%, the yield on a 10-year T-bond is 4.30%. the market risk premium is 8.17%. and the Burris Company has a beta of 1.13. Using the Capital Asset Pricing Model (CAPM)...
The CPM estimate or rs is equal to the risk free rate, Tre, plus a nisk...
The CPM estimate or rs is equal to the risk free rate, Tre, plus a nisk premium that is equal to the nsk premium on an average stock, (M ), scarea up or down to reflect the particular stock's risk as measured by its beta coefficient, b. This model assumes that a firm's stockholders are Select diversified, but if they are Select diversified, then the firm's true investment risk would not be measured by Select and the CAPM estimate would...
5. The cost of retained earnings Aa Aa the required rate of If a firm cannot...
5. The cost of retained earnings Aa Aa the required rate of If a firm cannot invest retained earnings to earn a rate of return less than return on retained earnings, it should return those funds to its stockholders. The cost of equity using the CAPM approach The current risk-free rate of return (RF) is 4.67%, while the market risk premium is 6.17%. the Roosevelt Company has a beta of 1.56. Using the Capital Asset Pricing Model (CAPM) approach, Roosevelt's...
The DCF approach for estimated the cost of retained earnings, rs, is given as follows: Is...
The DCF approach for estimated the cost of retained earnings, rs, is given as follows: Is = fs = D1/Po + Expected GL Investors expect to receive a dividend yield, Po, plus a capital gain, g, for a total expected return. In -Select- , this expected return is also equal to the required return. It's easy to calculate the dividend yield; but because stock prices fluctuate, the yield varies from day to day, which leads to fluctuations in the DCF...
The DCF approach for estimated the cost of retained earnings, rs, is given as follows: s...
The DCF approach for estimated the cost of retained earnings, rs, is given as follows: s = D1/P0 + Expected gL Investors expect to receive a dividend yield, , plus a capital gain, g, for a total expected return. In -Select-recessionsequilibriumupturnItem 8 , this expected return is also equal to the required return. It's easy to calculate the dividend yield; but because stock prices fluctuate, the yield varies from day to day, which leads to fluctuations in the DCF cost...
If reliable inputs for the CAPM are not available as would be true for a closely...
If reliable inputs for the CAPM are not available as would be true for a closely held company, analysts often use a subjective procedure to estimate the cost of equity. Empirical studies suggest that the risk premium on a firm's stock over its own bonds generally ranges from 3 to 5 percentage points. The equation is shown as: rs = Bond yield + Risk premium. Note that this risk premium is the risk premium given in the CAPM. This method...
The cost of equity using the CAPM approach The current risk-free rate of return (RF) is 4.23%, while the market risk premium is 6.63%, the Burris Company has a beta of 0.92. Using the Capital Asset Pricing Model (CAPM) approach, Burris's cost of equity is The cost of equity using the bond yield plus risk premium approach The Lincoln Company is closely held and, therefore, cannot generate reliable inputs with which to use the CAPM method for estimating a company's...
The cost of equity using the CAPM approach The current risk-free rate of return (TRF) is 4.67% while the market risk premium is 6.63%. The Jefferson Company has a beta of 0.92. Using the capital asset pricing model (CAPM) approach, Jefferson's cost of equity is 11.3085% The cost of equity using the bond yield plus risk premium approad 10.779 11.847% The Harrison Company is dosely held and, therefore, cannot generate relis cost of internal equity. Harrison's bonds yield 11.52%, and...
The cost of retained earnings the required rate of If a firm cannot invest retained earnings to earn a rate of return return on retained earnings, it should return those funds to its stockholders. The cost of equity using the CAPM approach The yield on a three-month T-bill is 3%, the yield on a 10-year T-bond is 4.30%. the market risk premium is 8.17%. and the Burris Company has a beta of 1.13. Using the Capital Asset Pricing Model (CAPM)...
The CPM estimate or rs is equal to the risk free rate, Tre, plus a nisk premium that is equal to the nsk premium on an average stock, (M ), scarea up or down to reflect the particular stock's risk as measured by its beta coefficient, b. This model assumes that a firm's stockholders are Select diversified, but if they are Select diversified, then the firm's true investment risk would not be measured by Select and the CAPM estimate would...
5. The cost of retained earnings Aa Aa the required rate of If a firm cannot invest retained earnings to earn a rate of return less than return on retained earnings, it should return those funds to its stockholders. The cost of equity using the CAPM approach The current risk-free rate of return (RF) is 4.67%, while the market risk premium is 6.17%. the Roosevelt Company has a beta of 1.56. Using the Capital Asset Pricing Model (CAPM) approach, Roosevelt's...
The DCF approach for estimated the cost of retained earnings, rs, is given as follows: Is = fs = D1/Po + Expected GL Investors expect to receive a dividend yield, Po, plus a capital gain, g, for a total expected return. In -Select- , this expected return is also equal to the required return. It's easy to calculate the dividend yield; but because stock prices fluctuate, the yield varies from day to day, which leads to fluctuations in the DCF...
Most questions answered within 3 hours.
-
DNA to Protein
Describe the mutation that created the HbS allele:
type of mutation, location of...
asked 3 minutes ago -
1a)When a 5000-kg roller coaster train full of riders approaches
the loading dock at a speed...
asked 3 minutes ago -
Which attribute allows you to specify a custom "thumbnail" for
multimedia elements?
asked 4 minutes ago -
USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT (6)
QUESTIONS:
The following is a December 31,...
asked 6 minutes ago -
1. Why are the advantages and disadvantages of object-oriented
databases? 2. What are data marts? How...
asked 22 minutes ago -
A Porsche challenges a Honda to a 4.00×102m race. Because the
Porsche's acceleration of 3.30 m/s2...
asked 23 minutes ago -
A sample of C3H8 has 1.60×1024 H atoms.
How many carbon atoms does the sample contain?...
asked 1 hour ago -
How many unique codes are possibly formed from two characters,
where the first character can be...
asked 45 minutes ago -
A concentration cell is built based on the reaction:
2H+ + 2e- ----> H2
The pH...
asked 41 minutes ago -
what is the ph of the following solutions?
150 g NH4CI dissolved into 10.0 mL of...
asked 53 minutes ago -
A projectile is launched with an initial speed of 40 m/s at an
angle of 25°...
asked 35 minutes ago -
1. Using a function, display the customer who has the highest
credit limit. Display the customer...
asked 44 minutes ago