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 in one year. Analysts project the firm’s growth rate to be constant at 7.20%. Using the discounted cash flow (DCF) approach, Cold Goose’s cost of equity is estimated to be____________%
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 in one year. Analysts project the firm’s growth rate to be constant at 7.20%. Using the discounted cash flow (DCF) approach, Cold Goose’s cost of equity is estimated to be____________%
Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Chapter5: Risk Analysis
Section: Chapter Questions
Problem 11QE: Market equity beta measures the covariability of a firms returns with all shares traded on the...
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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 in one year. Analysts project the firm’s growth rate to be constant at 7.20%. Using the discounted cash flow (DCF) approach, Cold Goose’s cost of equity is estimated to be____________%
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