Calculate the required rate of return for Climax Inc., assuming that (1) investors expect a 4.0% rate of inflation in the future, (2) the real risk-free rate is 3.0%, (3) the market risk premium is 5.0%, (4) the firm has a beta of 2.30, and (5) its realized rate of return has averaged 15.0% over the last 5 years. Do not round your intermediate

Question
Asked Nov 22, 2019
73 views

Calculate the required rate of return for Climax Inc., assuming that (1) investors expect a 4.0% rate of inflation in the future, (2) the real risk-free rate is 3.0%, (3) the market risk premium is 5.0%, (4) the firm has a beta of 2.30, and (5) its realized rate of return has averaged 15.0% over the last 5 years. Do not round your intermediate

check_circle

Expert Answer

Step 1

Calculate the required rate ...

help_outline

Image Transcriptionclose

rr+ (mpX)+I ,xB)+ 3%+(5%x2.30) + 4% 18.5%

fullscreen

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Finance

Interest Rate Model

Related Finance Q&A

Find answers to questions asked by student like you
question_answer

Q: Summarize and discuss the implications of the findings for the business or potential business transa...

A: The present value of the stock is calculated on the basis of future dividend payments. All future di...

question_answer

Q: ABC Trading wants to raise equity to fund an acquisition of a small company (XYZ). ABC is considerin...

A: Number of shares issued by way of right offering:Note: one right for each 12.5 shares own.

question_answer

Q: You own a furniture manufacturing company. You are looking to expand into glass furniture and need t...

A: For the calculation of APR of both machines, first we need to calculate the average net profit of bo...

question_answer

Q: Annual and Average Returns for Stocks, Bonds, and T-Bills, 1950 to 2017      Stocks   Long-Term T...

A: Portfolio return is the combined return on the investment portfolio which is expected by the investo...

question_answer

Q: (Cost of​ debt)   Sincere Stationery Corporation needs to raise ​$500,000 to improve its manufacturi...

A: a.The formula to calculate price of bond is given below,

question_answer

Q: ASDF Corporate Income Statement Current Year Units Sold 100,000 $37.84 $3, 784,000 $1,284,000 Unit P...

A: Break even unit sales can be described as the level of sale which generate enough revenue to cover v...

question_answer

Q: Excel Online Structured Activity: CAPM, portfolio risk, and return Consider the following informatio...

A: Excel computation:

question_answer

Q: You are researching Time Manufacturing and have found the following accounting statement of cash flo...

A: 4.)Computation of cash flow to creditors:Hence, the cash flow to the creditors is -$91.9.

question_answer

Q: Company ABC just sold their most profitable division for $100 million in cash. The company has a mar...

A: A)(i) Initial Investment = $100 MillionPayoff is given for the next year with different probabilitie...

question_answer

Q: Firm L needs 10 vans. There are two options available: Firm L can buy 10 vans for 120,000 and have a...

A: Computation of cost of leasing:

question_answer

Q: How do I calculate the interest in excel?

A: Please follow the whiteboard for calculations and formula to determine the appropriate interest rate...

question_answer

Q: I need help with this problem and putting into an excel format with formulas. You are looking into ...

A: Initial Investment = $38 MillionCalculation of the Net Present Value by using excel is as follows:

question_answer

Q: Calculating operating cash​ flows)   The Heritage Farm Implement Company is considering an investmen...

A: Hence, the net profit after interest and expense is $1,122,000, which is determined by reducing cash...

question_answer

Q: You have a portfolio with a beta of 1.29. What will be the new portfolio beta if you keep 94 percent...

A: Beta: It is a numerical value which evaluates the variations of a stock to shifts in the stock marke...

question_answer

Q: Estimate the Cost of Capital for Company XYZ based on the information below. $50.00 $1.60 Stock pric...

A: Cost of equity is calculated using the Capital Asset Pricing Model.

question_answer

Q: Ghost, Inc., has no debt outstanding and a total market value of $395,600. Earnings before interest ...

A: a.1Computation of EPS:Excel spread sheet:

question_answer

Q: Eggz, Inc., is considering the purchase of new equipment that will allow the company to collect loos...

A: The net present value is the true value of future cash flows. It is done by considering the time val...

question_answer

Q: Compute the expected return given these three economic states, their likelihoods, and the potential ...

A: Calculation of Expected Return:The expected return is 1.20%.Excel Spreadsheet:

question_answer

Q: A mining company in South Africa has discovered a new gold vein in a mountain 150 kilometers north o...

A: With the given values on the initial cash outflows and the future cash inflows we can determine the ...

question_answer

Q: Meyer & Co. expects its EBIT to be $115,000 every year forever. The firm can borrow at 7 percent...

A: EBIT = $115,000Cost of Equity = 13% or 0.13Tax Rate = 24% or 0.24 Calculation of the Value of the Un...

question_answer

Q: 2c) Give an example to show that the American put can be worth more than the European put, that is, ...

A: The put option for both American and European options are as follows:

question_answer

Q: Is there an easily identifiable debt-equity ratio that will maximize the value of the firm?support  ...

A: No, it is not easy to identify a debt-equity ratio, which would increase the firm’s value.

question_answer

Q: You are researching Time Manufacturing and have found the following accounting statement of cash flo...

A: Since we only answer up to 3 sub-parts, we will answer the first 3. Please resubmit the question and...

question_answer

Q: Problem 11-1 Cost of Equity (LG11-3) Diddy Corp. stock has a beta of 1.3, the current risk-free...

A: According to capital asset pricing model (CAPM):

question_answer

Q: Acme has branched out to rentals of office furniture to start-up companies. Consider a $4,600 desk. ...

A: Calculation of break-even lease rate:Answer:The break-even rate is $1505.12

question_answer

Q: The past five monthly returns for PG&E are −3.55 percent, 4.83 percent, 4.15 percent, 7.04 perce...

A: Calculation of Standard Deviation of PG&E’s monthly return using STDEV.S function of excel:To op...

question_answer

Q: Describe the importance of working capital management.  What are the pros and cons of maintaining hi...

A: Importance of working capital management as follows:Expansion of investment portfolioIncreased profi...

question_answer

Q: Adobe Systems has come out with a new and improved product.  As a result, the firm projects an ROE o...

A: Calculation of P/E Ratio and Present Value of Growth Opportunities (PVGO):The P/E Ratio is 6.67 and ...

question_answer

Q: Firm X needs 1 computer. There are two options available: Firm X can buy 1 computer for 2,000; or Fi...

A: Computation of cost of leasing:

question_answer

Q: A mining company in South Africa has discovered a new gold vein in a mountain 150 kilometers north o...

A: Effects of environmental factors:A good example of external costs is the adverse environmental impac...

question_answer

Q: Young Pharmaceuticals is considering a drug project that costs $2.56 million today and is expected t...

A: Computation of discount rate:The company would be indifferent between rejecting or accepting the pro...

question_answer

Q: juanita's steak house has 12,000 of debt outstanding that is selling at par and has a coupon rate of...

A: Computation of PV of the tax shield:Hence, the present value of the tax shield is $4,080.

question_answer

Q: XYZ company has just paid a dividend of $1.15. The required rate of return on the stock is 13.4%, an...

A: Dividend = $1.15Growth Rate = 8% or 0.08Required Rate of Return = 13.4% or 0.134 Calculation of Curr...

question_answer

Q: Matilda Industries pays a dividend of $2.15 per share and is expected to pay this amount indefinitel...

A: The value of the stock can be calculated by dividing cost of capital from the dividends per share if...

question_answer

Q: When an investment banker purchases an offering froma bond issuer and then resells it to the public ...

A: Answer: Option C.  Firm commitmentFirm commitment is also known as a bought deal. In this, the inves...

question_answer

Q: How would each of the following scenarios affect a firm's cost of debt, ra(1-T); its cost of equity,...

A: Weighted average cost of capital (wacc) is calculated as sum of the after-tax cost of debt and cost ...

question_answer

Q: critically discuss the Langtry Falls Expansion Plan and evaluate the issues in the Langtry benchmark...

A: Langtry Fall Expansion Plan:It is a case study which is introduced by Harvard Business Review (HBR) ...

question_answer

Q: The current price of XL Corporation stock is $40.  In each of the next two years, this stock price c...

A: Calculate the probabilities: p is 57.37% and 1-p is 42.63%.

question_answer

Q: NikkiG’s Corporation’s 10-year bonds are currently yielding a return of 6.80 percent. The expected i...

A: Current Yield = 6.80%Expected Inflation Premium (EIP) = 1.20%Risk-free Rate (RFR) = 2.10%Liquidity R...

question_answer

Q: Compute the PI statistic for Project Q if the appropriate cost of capital is 12 percent. (Do not rou...

A: Calculation of Profitability Index (PI):The profitability index (PI) is 0.85.Excel Spreadsheet:

question_answer

Q: #60

A: Calculation of future value of payments:Answer:Future value of payments is $185,360.20; the policy i...

question_answer

Q: $10,000 is borrowed at 10% a year interest for five years. At the end of each year, the borrower pay...

A: Given that the initial borrowed amount is $1000, interest rate is 10% for 5 years and at the end of ...

question_answer

Q: Before you put your money down and purchase a stock, what should you know about it?

A: An investor must consider certain factors which are necessary to make decision whether to buy the st...

question_answer

Q: Need help to figure this problem and put into excel format with formulas.

A: Hi, there is no information regarding the cash inflows for each year for each machine is mentioned, ...

question_answer

Q: How do you know to select the correct incoterm?

A: Meaning of incoterm:Incoterm or Inter Commercial Terms are nothing but set of pre-defined rules and ...

question_answer

Q: Atlantic Corporation is the largest logging company in the north eastern part of the United States. ...

A: Dividends are declining at a constant rate of 5% with last dividend paid D0 being $5. Required rate ...

question_answer

Q: Question 4. A stock that pays no dividends has price today of 100. In one year’s time the stock is w...

A: a)The formula to calculate the forward price of the stock is given below:

question_answer

Q: A corporation has $5,000,000 of 8 percent preferred stock outstanding and a 21 percent tax rate. The...

A: Computation of after-tax cost of preferred stock:After-tax cost of preferred stock is $400,000.

question_answer

Q: What is basis risk in relation to futures contract hegding?

A: Basis Risk:Basis risk is a financial risk which arises from the incompatibility in the positions of ...

question_answer

Q: Calculate the finance charge for a credit card that has the given average daily balance and interest...

A: Calculation of Finance Charge:The finance charge is $2.05.Excel Spreadsheet: