(b) Shares in the Beeblebrox company have a beta coefficient (B) of 2, and a required rate of return of 22.5 per cent. If the risk-free rate is 3 per cent and the market risk-premium is 9.5 per cent, would you recommend investing in this company' shares? Explain fully.
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- If a firm cannot invest retained earnings to earn a rate of returngreater than or equal to the required rate of 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 (rRFrRF) is 4.67% while the market risk premium is 5.75%. The Burris Company has a beta of 0.78. 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 Taylor Company is closely held and, therefore, cannot generate reliable inputs with which to use the CAPM method for estimating a company’s cost of internal equity. Taylor’s bonds yield 11.52%, and the firm’s analysts estimate that the firm’s risk premium on its stock over its bonds is 3.55%. Based on the bond-yield-plus-risk-premium approach, Taylor’s cost of internal equity is: 18.84% 15.07% 14.32% 18.08% The…If a firm cannot invest retained earnings to earn a rate of return______________ (Pick either A- greater than or equal to or B- Less than) the required rate of return on retained earnings, it should return those funds to its stockholders. The current risk-free rate of return is 4.60% and the current market risk premium is 6.10%. Green Caterpillar Garden Supplies Inc. has a beta of 1.56. Using the Capital Asset Pricing Model (CAPM) approach, Green Caterpillar’s cost of equity is_____________% Cute Camel Woodcraft Company is closely held and, as a result, cannot generate reliable inputs for the CAPM approach. Cute Camel’s bonds yield 10.20%, and the firm’s analysts estimate that the firm’s risk premium on its stock relative to its bonds is 3.50%. Using the bond-yield-plus-risk-premium approach, the firm’s cost of equity is___________% The stock of Cold Goose Metal Works Inc. is currently selling for $25.67, and the firm expects its dividend to be $2.35…What is the principal message of the Capital Asset Pricing Model (CAPM)? What are its assumptions? What is Beta? Is high beta good or bad for a company? Which type of company will have a higher Beta: a fast food chain or a luxury cruise-ship company? Why? Brimbank company shares has an expected return of 15%. The share’s Beta is 1.2, the risk-free rate is 3% and the market risk premium is 6%. Based on this information do you think the share is overvalued or undervalued? Why? A [particular share sells for $30. The shares’ Beta is 1.25, the risk-free rate is 4%, and the expected return on the market portfolio is 10%. If you predict that the share’s market price next year will be $33 (and no dividend), should you buy the share or not? Why?
- Assume you are given the following information for firms A and B: A B D $1,563,400.00 $2,357,316.00 E $2,051,347.00 $1,257,431.00 Price $31.25 $31.25 i 13.52% 13.52% EBIT $97,347.00 $97,347.00 No taxes How do you replicate an investment in 79% of stock B by using stock A? What is the return of the replicating strategy?Assuming the CAPM or one-factor model holds, what is the cost of equity for a firm if the firm's equity has a beta of 1.2, the risk-free rate of return is 4%, the expected return on the market is 10%, and the return to the company's debt is 7%? A. 11.2% B. 11.4% C. 12.8% D. 12.9% E. None of these.You have the following information on a company on which to base your calculations and discussion: Cost of equity capital (rE) = 18.55% Cost of debt (rD) = 7.85% Expected market premium (rM –rF) = 8.35% Risk-free rate (rF) = 5.95% Inflation = 0% Corporate tax rate (TC) = 35% Current long-term and target debt-equity ratio (D:E) = 2:5 a. What are the equity beta (bE) and debt beta (bD) of the firm described above?[Hint: Assume that the above costs of capital have been generated by an appropriate equilibrium model.] b. What is the weighted-average cost of capital (WACC) for this firm at the current debt-equity ratio? c. What would the company’s cost of equity capital become if you unlevered the capital structure (i.e. reduced gearing until there is no debt)
- I need help, please show me the calculation Questions: The cost of capital for a firm with a 60/40 debt/equity split, 4.5% cost of debt, 15% cost of equity, and a 35% tax rate would be? The risk free rate currently have a return of 2.5% and the market risk premium is 4.22%. If a firm has a beta of 1.42, what is its cost of equity? How much should you pay for a share of stock that offers a constant growth rate of 10%, requires a 16% rate of return, and is expected to sell for $77.77 one year from now?Express Steel Corporation wishes to calculate its cost of common stock equity, by using the capital asset pricing model (CAPM). The firm’s investment advisors and its own analysts indicate that the risk-free rate equals 9,1%; the firm’s beta equals 0,75; and the market return equals 16%. Please estimate the cost of common stock equity by using CAPM.Suppose the risk-free rate is 3.62% and an analyst assumes a market risk premium of 6.27%. Firm A just paid a dividend of $1.04 per share. The analyst estimates the β of Firm A to be 1.33 and estimates the dividend growth rate to be 4.82% forever. Firm A has 268.00 million shares outstanding. Firm B just paid a dividend of $1.97 per share. The analyst estimates the β of Firm B to be 0.79 and believes that dividends will grow at 2.81% forever. Firm B has 185.00 million shares outstanding. What is the value of Firm A?
- Suppose the risk-free rate is 2.67% and an analyst assumes a market risk premium of 6.91%. Firm A just paid a dividend of $1.21 per share. The analyst estimates the β of Firm A to be 1.45 and estimates the dividend growth rate to be 4.46% forever. Firm A has 295.00 million shares outstanding. Firm B just paid a dividend of $1.75 per share. The analyst estimates the β of Firm B to be 0.89 and believes that dividends will grow at 2.83% forever. Firm B has 188.00 million shares outstanding. What is the value of Firm A? Answer format: Currency: Round to: 2 decimal places.A. CALCULATE the cost of equity capital of H Ltd., whose risk-free rate of return equals 10%. The firm's beta equals 1.75 and the return on the market portfolio equals to 15%. B. The current ratio of H Ltd is 5:1 and standard current ratio given by accounting bodies is 2:1? Do you think that H Ltd should try to reduce its current ratio?Suppose the risk-free rate is 3.91% and an analyst assumes a market risk premium of 6.52%. Firm A just paid a dividend of $1.11 per share. The analyst estimates the β of Firm A to be 1.20 and estimates the dividend growth rate to be 4.27% forever. Firm A has 264.00 million shares outstanding. Firm B just paid a dividend of $1.83 per share. The analyst estimates the β of Firm B to be 0.70 and believes that dividends will grow at 2.86% forever. Firm B has 197.00 million shares outstanding. What is the value of Firm B? Answer format: Currency: Round to: 2 decimal places.
