Bradford manufacturing company has abta of 1.45 while Farley industries has abeta of 0.85 the holds the entire stock market is 12.0 % the risk –free rate of interest is 5% .By how much does Bradfords required return exceed Farley s required return ?

Bradford manufacturing company has abta of 1.45 while Farley industries has abeta of 0.85 the holds the entire stock market is 12.0 % the risk –free rate of interest is 5% .By how much does Bradfords required return exceed Farley s required return ?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 10P

See similar textbooks

Related questions

Q: ou own $14,504 of Opsware, Inc. stock that has a beta of 3.85. You also own $20,384 of Lowe’s…

A: Calculation of Market Risk Premium, Risk Premium for each stock and Portfolio Risk Premium:The…

Q: Nine Point Industries recently paid its annual dividend of $4.42, and reported an ROE of 8%. The…

A: given, d0 = $4.42 roe=8% dividend payout = 50% beta= 1.62 rf=3.45% rm=18%

Q: The Rhaegel Corporation's common stock has a beta of 1.1. If the risk-free rate is 4.2 percent and…

A: The cost of equity capital is the sum of risk-free rate plus beta. It is calculated as follows: Cost…

Q: 1. The market value of the stocks of Shine Corporation at the beginning of year 1 is P120 per share;…

A: Hello. Since your question has multiple sub-parts, we will solve first three sub-parts for you. If…

Q: Using the equity asset valuation model (CAPM) equation, determine the required return for the shares…

A: A model that represents the relationship of the required return and beta of a particular asset is…

Q: Assume the market value of ABC's common stock, preferred stock, and debt are$7 million, $3 million,…

A: Part (a)All fiancials below are in $ million, except dividends and price which are in $.Market value…

Q: Express Steel Corporation wishes to calculate its cost of common stock equity, by using the capital…

A: CAPM is an abbreviation for capital asset pricing model which is used to determine the rate of…

Q: The following problem refers to the stock table for ABC Inc. (a tire company) given below. Use the…

A: Dividend yield is the ratio of the current dividend to current share price.…

Q: You have the following information about the returns for the securities of Super Lux plc and the…

A: The capital asset pricing model is the model which shows the relationship between the systematic…

Q: A common stock has a market value $13 million. The market value of risk free debt is $8 million. IF…

A: Market Value of Common Stock= $13 million Beta of stock= 1.3 Market Return= 15% Market Value of…

Q: Hoolahan Corporation's common stock has a beta of 1.24. Assume the risk-free rate is 4.9 percent and…

A: Formula: Cost of equity = Risk free rate + (beta*(market rate - risk free rate))

Q: porter's Inc.'s stock has an expexted return of 12.5%, a beta of 1.25, and is in equilibrium. If the…

A: Computation of market risk premium:Market risk premium is 8.40%.Excel spread sheet:

Q: The Swanson Corporation's common stock has a beta of 1.07. If the risk-free rate is 3.4 percent and…

A: Cost of equity here will be the required rate of return. We need to calculate cost of equity or…

Q: Suppose the risk-free rate is 2.67% and an analyst assumes a market risk premium of 6.91%. Firm A…

A: Risk free rate (Rf) = 2.67% Market Risk Premium(Rm-Rf) = 6.91% Beta = 1.45 Therefore as Capital…

Q: Hoolahan Corporation's common stock has a beta of .87. Assume the risk-free rate is 3.6 percent and…

A: Risk free rate (Rf) = 3.6% Beta (B) = 0.87 Market return (Rm) = 11%

Q: 1.5%. MostDef pays $0.65 of each dividend each quarter for each share of common stock, priced at $75…

A: The dividend discount model (DDM) is used by investors to determine the price of stocks. The stocks…

Q: The common stock of Buildwell Conservation & Construction Inc. (BCCI) has a beta of 0.9. The…

A: Computation of BCCI’s Cost of equity capital is shown: Formulation is shown:

Q: The Rhaegel Corporation's common stock has a beta of 1.8. If the risk-free rate is 4.9 percent and…

A: 1. COST OF EQUITY CAPITAL : = RISK FREE RATE + BETA X RISK PREMIUM 2. RISK PREMIUM : = EXPECTED…

Q: You own $17,765 of Opsware, Inc. stock that has a beta of 3.73. You also own $24,310 of Lowe's…

A: A combination of the different types of funds and securities for the investment is term as the…

Q: A stock is currently selling for $92.45 and is expected to sell for $109.07 in 1 year. If the…

A: The overall return on an asset or investment portfolio over the time it has been kept is known as…

Q: The Angelina Corporation's common stock has a beta of 1.8. If the risk-free rate is 4.4 percent and…

A: Cost of equity = Risk free rate + (Expected market return - Risk free rate) * Beta

Q: The common stock of Buildwell Conservation & Construction Inc. (BCCI) has a beta of 0.9. The…

A: a) Hence, the cost of equity capital is 9.40%. Working note:

Q: Smathers Corp. stock has a beta of 1.24. The market risk premium is 6.90 percent and the risk-free…

A: Using CAPM

Q: The current price of a stock is $100 and has volatility σ of 0.25. The continuous risk free rate is…

A: Working note:

Q: 1. The market value of the stocks of Shine Corporation at the beginning of year 1 is $120 per share,…

A: Holding period return (HPR) refers to the total return generated by an asset or an investment over…

Q: The total market value of the equity of Okefenokee Condos is $8 million, and the total value of its…

A: d) Computation:

Q: The stock of Eaton Corporation (ticker: ETN) has an E(R) = 9.3% and a reward-to-risk ratio = 6.32%.…

A: Reward to risk ratio = (expected return - risk free rate) / beta.

Q: Silver Industries' Y shares have an expected return of 15%, a beta coefficient of 0.8 and a standard…

A: For the given risk and return, Comparison between two shares can be made basis coefficient of…

Q: The Rhaegel Corporation's common stock has a beta of 1.8. If the risk-free rate is 4.9 percent and…

A: given, beta = 1.8 risk free rate ( rf )= 4.9% expected return of market ( rm )= 11%

Q: The ordinary shares of Mumford Quilt Company have a beta of 1.1. If the expected risk-free return is…

A: In this we have to use capital assets price model to calculate the expected rate of return.

Q: The Rhaegel Corporation's common stock has a beta of 11. If the risk-free rate is 5.1 percent and…

A: Given, Beta = 1.1 Risk-free rate (Rf) = 5.1% Expected return of the market(Rm) = 13%

Q: Porter's Inc.'s stock has an expexted return of 12.5%, a beta of 1.25, and is in equilibrium. If the…

A: Following details are given in the question for Porter's Inc Stock: Expected Return = 12.5% Beta =…

Q: Wild Swings, Inc.'s stock has a beta of 2.1. If the risk-free rate is 5.9% and the market risk…

A: given, rf=5.9%MRP=7.1%beta =2.1

Q: The Nixon Corporation's common stock has a cost of capital of 12 percent. If the market risk premium…

A: The capital structure of a corporation is the combination of the sources of financing through which…

Q: Hoolahan Corporation’s common stock has a beta of 1.11. Assume the risk-free rate is 4.6 percent and…

A: Given: Beta = 1.11 Risk free rate = 4.6% Market rate = 12.1%

Q: Assume that Umbrella Corp. stock has a required rate of return (rs) = 99. If 30-year T-Bonds are…

A: Required rate of return = Risk free rate + beta * (market return - risk free rate)

Q: You know that the return of Wildhorse Cyclicals common shares is 1.1 times as sensitive to…

A: Given:Return of wildhorse cyclicals common shares is 1.1 times as sensitive to the return on…

Q: Annual dividend is $2.97 per share of Stock. The real risk free rate of return is 3.25%. The…

A: In this we have to use CAPM formula for calculating.

Q: The Rhaegel Corporation's common stock has a beta of 1.1. If the risk-free rate is 4.5 percent and…

A: The cost of capital is calculated using CAPM. CAPM refers to the capital asset pricing model. It…

Q: The shares of DCB Bank are currently valued at $27 and they have a volatility of 28% pa. The risk…

A: Stock Price S $…

Q: The total market value of the equity of Okefenokee Condos is $8 million, and the total value of its…

A: Hello. Since your question has multiple sub-parts, we will solve first three sub-parts for you. If…

Q: Suppose Simmons' common stock has a beta of 1.37, the risk-free rate is 3.4% and the market risk…

A: Cost of equity is calculated by CAPM: Cost of equity = Rf + ß*(Rm-Rf) Weight of equity = 1/(1+D/E…

Q: The average return on the Market is 12% while the market risk premium is 7%. What is the require…

A: The required rate of return is the minimum desired return by the investor. The required rate of…

Q: Nodebt Inc. is a firm with all-equity financing. Its equity beta is 0.80. The Treasury bill rate is…

A: Equity beta = 0.80 Risk free rate = 3% Market risk premium = 7% Cost of equity = Risk free…

Q: The total market value of the equity of Okefenokee Condos is $6 million, and the total value of its…

A: Hello. Since your question has multiple sub-parts, we will solve first three sub-parts for you. If…

Q: Roslin Robotics stock has a volatility of 30% and a current stock price of $60 per share. Roslin…

Q: The Hudson Corporation’s common stock has a beta of 1.4. If the risk-free rate is 4.5 percent and…

A: Questions 1-2:Calculation of Cost of Equity Capital and WACC:The cost of equity capital is 13.60%…

Q: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the…

A: CAPM = Risk free rate + beta * market risk premium Bond yield plus risk premium = Bond yield + risk…

Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

100%

: Bradford manufacturing company has abta of 1.45 while Farley industries has abeta of 0.85 the holds the entire stock market is 12.0 % the risk –free rate of interest is 5% .By how much does Bradfords required return exceed Farley s required return ?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Step by step

Solved in 3 steps with 3 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Suppose there is a large probability that L will default on its debt. For the purpose of this example, assume that the value of Ls operations is 4 million (the value of its debt plus equity). Assume also that its debt consists of 1-year, zero coupon bonds with a face value of 2 million. Finally, assume that Ls volatility, , is 0.60 and that the risk-free rate rRF is 6%.
Assume that Temp Force has a beta coefficient of 1.2, that the risk-free rate (the yield on T-bonds) is 7.0%, and that the market risk premium is 5%. What is the required rate of return on the firms stock?
An analyst has modeled the stock of a company using the Fama-French three-factor model. The market return is 10%, the return on the SMB portfolio (rSMB) is 3.2%, and the return on the HML portfolio (rHML) is 4.8%. If ai = 0, bi = 1.2, ci = 20.4, and di = 1.3, what is the stock’s predicted return?
The required rate of return on the Daisy Corporationʹs common stock is 11%, the current real rate of return in the market is 1%, and the marketʹs risk-free rate of return is 4%. In this case, the risk premium associated with Daisyʹs stock is * 5%. 6%. 7%. 8%.
The Lenzie Corporation's common stock has a beta of 1.80. If the risk - free rate is 4.9% and the expected return on the market is 11%, what is the company's cost of equity capital? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places.) Cost of equity capital %
The common stock of Anthony Steel has a beta of 0.80. The risk-free rate is 5 percent and the market risk premium (rM - rRF) is 6 percent. What is the company’s cost of common stock, rs?
Kaiser Aluminum has a beta of 0.70. If the risk-free rate (RRF) is 5.0%, and the market risk premium is (RPM) is 7.4 % what is the firm's cost of equity from retained earnings based on the CAPM?Your answer should be between 8.70 and 11.25, rounded to 2 decimal places, with no special characters.
The total value (debt plus equity) of Wilson Dover Inc. is $500 million and the face value of its 1 - year coupon debt is $200 million. The volatility (\ sigma) of Wilson Dover's total value is 0.60, and the risk free rate is 5%. Assume that N(d1) = 0.9720 and N(d2) = 0.9050. Refer to the data for Wilson Dover Inc. What is the value (in millions) of Wilson Dover's debt if its equity is viewed as an option? a. $247.82 b. $186.19 c. $167.57 d. $204.81 e $225.29
Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $2.40 and it expects dividends to grow at a constant rate gL = 5.8%. The firm's current common stock price, P0, is $21.00. The current risk-free rate, rRF, = 4.8%; the market risk premium, RPM, = 6.1%, and the firm's stock has a current beta, b, = 1.2. Assume that the firm's cost of debt, rd, is 10.57%. The firm uses a 4.1% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Do not round intermediate calculations. Round your answers to two decimal places. CAPM cost of equity: % Bond-Yield-Plus-Risk-Premium: % DCF cost of equity: % If you are equally confident of all three methods, then what is the best estimate of the firm’s cost of…
Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $2.10 and it expects dividends to grow at a constant rate g = 4.4%. The firm's current common stock price, P0, is $25.00. The current risk-free rate, rRF, = 4.7%; the market risk premium, RPM, = 6.0%, and the firm's stock has a current beta, b, = 1.15. Assume that the firm's cost of debt, rd, is 11.00%. The firm uses a 3.0% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Round your answers to two decimal places. CAPM cost of equity: % Bond yield plus risk premium: % DCF cost of equity: % What is your best estimate of the firm's cost of equity?
Roundall dollar answers to 2 decimal places and record all interest rate, coupon rate and growth rate answers as a percentrounded to one decimal place 40. If the expected return on the market portfolio (i.e., Rm) is 18%, if the risk-free rate (i.e., Rf) is 8% and if thebeta of Homton, Inc. stock is 1.75, what is the equilibrium expected rate of return on Homton’s stockaccording to the Capital Asset Pricing Model (CAPM)? (Record your answer rounded to 1 decimal place; forexample, record 18.29654% as 18.3).41. If the beta of Braxton, Inc. stock is 1.51, the risk-free rate (Rf) is 3.5%, and the market risk premium is 4.8%,what is the equilibrium expected rate of return on Braxton’s stock according to the Capital Asset PricingModel (CAPM)? (Record your answer rounded to 1 decimal place; for example, record 18.29654% as 18.3)
Driver Products recently paid its annual dividend of $2, and reported an ROE of 15%. The firm pays out 50% of its earnings as dividends. The stock has a beta of 1.44. The current risk-free rate is 2.5% and the market return is 11%. Assuming that CAPM holds, what is the intrinsic value of this stock?