Answered: Salalah Oil,has a cost of equity…

Salalah Oil,has a cost of equity capital equal to 22.8 percent. If the risk-free rate of return is 10 percent and the expected return on the market is 18 percent, then what is the firm's beta.

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 16PROB

See similar textbooks

Related questions

Q: A firm has a required rate of return (k) of 15 percent and a return on equity (ROE) of 18%. If the…

A: The expected return is the minimum required rate of return which an investor required from the…

Q: Assume the risk-free rate is 4% and the beta for a particular firm is 2, current firm share price is…

A: Risk free Rate =4% Beta =2 Current Price = $35 Market Risk PRemium = 8%

Q: A company has a beta of .59. If the market return is expected to be 12.9 percent and the risk-free…

A: To solve the question, we need to use the formula of capital asset pricing model (CAPM), it shows…

Q: What is the expected return of Berjaya Corp., Biotech Corp.,

A: Expected return is the return expected by the investor on the investment. It is the profit or loss…

Q: Greg Noronha has been told the expected return on Merchants Bank is 8.80%, He knows the risk-free…

A: Fairly Valued - If a security's market price equals its true value, it is said to be fairly valued.…

Q: The risk free rate currently have a return of 2.5% and the market risk premium is 4.22%. If a firm…

A: Cost of equity refers to the net cost that a business entity bears by raising the capital from the…

Q: A firm's stock has a beta of 1.75, Treasury bills yield 3.8%, and the market portfolio offers an…

A: The Capital Asset Pricing Model is used to determine the cost of equity with the help of following…

Q: a. A company wants to estimate its required rate of return using the Capital Asset Pricing Model…

A: The minimum return that an investor will accept on investment is called the required rate of return.…

Q: calculate the cost of equity for the Collins Company using the capital asset pricing model.

A: Given information is: Assume that the Collins Company has a beta of 1.8 and that the risk-free rate…

Q: Suppose Pepsico's stock has a beta of 0.51. If the risk-free rate is 3% and the expected return of…

A: To determine market behaviour, the Capital Asset Pricing Model (CAPM) is applied. The model is based…

Q: A firm's stock has a beta of 1.75, Treasury bills yield 3.8%, and the market portfolio offers an…

A: Risk Premium: The rate of return on an investment that is in addition to the risk-free rate of…

Q: The DR Company’s common stock has a beta of 1.07. What is the company’s cost of equity capital if…

A: As per Capital asset pricing model Cost of equity capital = Risk free + Beta×[Return of market -…

Q: Aluminum maker Alcoa has a beta of about 1.07, whereas Hormel Foods has a beta of 0.84. If the…

A: The capital asset pricing model describes the relationship between systematic risk and the expected…

Q: The expected return on the market portfolio is 15%. The risk-free rate is 8%. The expected return on…

A: In the given question we need to calculate the Alpha of the stock. Alpha of the stock = Expected…

Q: If the firm’s beta is 1.75, the risk-free rate is 8%, and the average return on the market is 12%,…

A: Firm beta (B) = 1.75 Risk free rate (Rf) = 8% Market return (Rm) = 12%

Q: A company has a beta of 3.25. If the market return is expected to be 14 percent and the risk-free…

A: Given Data: Market return = 14% Risk-free rate = 5.5% Beta = 3.25

Q: AnthroPort has a beta of 1.1 and its RWACC is 13.6 percent. The market risk premium is 7.2 percent…

A: The value of the firm at year 4 is calculated with the help of WACC and growth rate

Q: Salalah Oil,has a cost of equity capital equal to 22.8 percent. If the risk-free rate of return is…

A: Cost of equity means cost of raising the money from common stock holder. Formula for cost of equity…

Q: Okik Inc. has a beta coefficient of 1.0 and a required rate of return of 12 percent. The market risk…

A: Capital Asset Pricing Model (CAPM): CAPM is the method of calculating the expected return on…

Q: The expected rate of return on a market portfolio is 7 percent. The riskless rate of interest is 4…

A: required rate of return = risk free rate + beta * (market return less risk free rate)

Q: The Graber Corporation's common stock has a beta of 1.15. The risk-free rate 3.5 percent and the…

A: Expected return =risk free rate + beta * (market return - risk free rate )

Q: The current beta for The Garner Company is 1.6. The risk-free rate of return is 3%, whereas the…

A: Current beta = 1.6 Risk free rate (Rf) = 3% Market risk premium (Rm - Rf) = 7%

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: Porter Plumbing’s stock had a required return of 11.75% last year, when the risk-free rate was 5.50%…

A: The required return or theoretical expected return on a company's stock is usually calculated using…

Q: "The market capitalization rate on the stock of Aberdeen Wholesale Company is 11%, Its expected ROE…

A: Financial accounting: Financial accounting is the process of recording, summarizing, and reporting…

Q: Diddy corp. has a beta of 1.3. The current risk-free rate is 3 percent and the expected return on…

A: Following details are given in the question for Diddy corp. : Beta of Stock = 1.3 Risk free rate =…

Q: Kaiser Aluminum has a beta of 0.70. If the risk-free rate (Rs) is 5.0%, and the market risk premium…

A: The capital asset pricing model is the model of valuing a stock's required rate of return on the…

Q: Suppose Pepsico's stock has a beta of 0.76. If the risk-free rate is 3% and the expected return of…

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

Q: UPS, a delivery services company, has a beta of 1.6, and Wal-Mart has a beta of 0.9. The risk-free…

A: The beta for entire portfolio is calculated below:

Q: Landscapers R Us, Inc., has a beta of 1.6 and is trying to calculate its cost of equity capital. If…

A: Given, Beta =1.60 Risk free Rate of return = 4% Expected Return on Market =10%

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: Consider the estimated beta values as of June 30, 2011, for the followingcompanies:…

A: Capital Asset Pricing Model or CAPM used to describe for the relationship between an expected return…

Q: A manager believes his firm will earn a return of 20.30 percent next year. His firm has a beta of…

A: Required Return: It is the rate of return which is the least satisfactory return an investor may…

Q: Vargo, Inc., has a beta estimated by Value Line of 1.3. The current risk-free rate (long-term) is…

A: The cost of common equity can be estimated with the help of CAPM equation.

Q: Your estimate of the market risk premium is 6%. The risk-free rate of return is 1% and General…

A: The Capital Asset Pricing Model (CAPM) is a model that gives the connection between the normal…

Q: Your firm has 100 shares of stock outstanding, which have a current market price of $1,000 per…

A: Modigliani-Miller Theorem OR mm theory says that if the debt to equity ratio of a firm increases…

Q: Kaiser Aluminum has a beta of 0.70. If the risk-free rate (Res) is 5.0%, and the market risk premium…

A: Capital Asset Pricing Model(CAPM) is the model which shows the relationship between the systematic…

Q: Aluminum maker Alcoa has a beta of about 1.73, whereas Hormel Foods has a beta of 1.68. If the…

A: The firm with a higher beta would have a higher equity cost of capital. As per CAPM, the equity cost…

Q: Treasury bills currently have a return of 3.5% and the market risk premium is 8%. If a firm has a…

A: Given information T bill rate = 3.5% (risk free rate) Market risk premium= 8% Beta…

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%…

Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Salalah Oil,has a cost of equity capital equal to 22.8
percent. If the risk-free rate of return is 10 percent and
the expected return on the market is 18 percent, then
what is the firm's beta.
Select one:
O a. 1.60
O b. 1.25
O c. None of these
d. 1.20

Expert Solution

This question has been solved!

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

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

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

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?
Liu Industries is a highly levered firm. Suppose there is a large probability that Liu will default on its debt. The value of Lius operations is 4 million. The firms debt consists of 1-year, zero coupon bonds with a face value of 2 million. Lius volatility, , is 0.60, and the risk-free rate rRF is 6%. Because Lius debt is risky, its equity is like a call option and can be valued with the Black-Scholes Option Pricing Model (OPM). (See Chapter 8 for details of the OPM.) (1) What are the values of Lius stock and debt? What is the yield on the debt? (2) What are the values of Lius stock and debt for volatilities of 0.40 and 0.80? What are yields on the debt? (3) What incentives might the manager of Liu have if she understands the relationship between equity value and volatility? What might debtholders do in response?
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?
Salalah Oil,has a cost of equity capital equal to 22.8 percent. If the risk-free rate of return is 10 percent and the expected return on the market is 18 percent, then what is the firm's beta. Select one: a. None of these b. 1.20 c. 1.25 d. 1.60
Terex company has a beta of 1.7 and is trying to calculate its cost of equity capital. If the risk-free rate of return is 5 percent and the average market return 16 percent, then what is the firm's after-tax cost of equity capital if the firm's marginal tax rate is 30 percent? Select one: a. 22.8 % b. 22.5 % c. 23.7 % d. None of these
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.
Landscapers R Us, Inc., has a beta of 1.6 and is trying to calculate its cost of equity capital. If the risk-free rate of return is 4 percent and the expected return on the market is 10 percent, then what is the firm's cost of equity capital?
Your estimate of the market risk premium is 6%. The risk-free rate of return is 1% and General Motors has a beta of 1.79. What is General Motors' cost of equity capital?
ABC, Inc. has equity beta of 1.75 with total assets financed with 80% of equity. The expected excess return on the market is 7 percent, and the risk-free rate is 3 percent. The firm is considering cutting total equity to 60% of total value. What would the cost of equity be if the firm meets its target?
Kaiser Aluminum has a beta of 0.70. If the risk-free rate (Rs) is 5.0%, and the market risk premium (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 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 current beta for The Garner Company is 1.6. The risk-free rate of return is 3%, whereas the market risk premium is 7%. How much would the cost of equity rise if the company extends its operations to the point where its beta reaches 1.9?