Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Chapter 12, Problem 3P
Summary Introduction
To determine: The firm that has a higher equity cost of capital and its amount.
Introduction:
Cost of capital refers to the return that the investors expect on a particular investment. In other words, it refers to the compensation demanded by the investors for using their capitals.
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Aluminum maker Alcoa has a beta of about 1.99, whereas Hormel Foods has a beta of 0.43. If the expected excess return of the market portfolio is 3%, which of these firms has a higher equity cost of capital, and how much higher is it?
Alcoa's equity cost of capital is __ % ? (Round to two decimal places.)
Aluminum maker Alcoa has a beta of about 1.8, whereas Hormel Foods has a beta of 0.41. If the expected excess return of the market portfolio is 4%, which of these firms has a higher equity cost of capital, and how much higher is it?
Alcoa's equity cost of capital is __ % ? (Round to two decimal places.)
Hormel's equity cost of capital is __ % ? (Round to two decimal places.)
Therefore, __ Alcoa's/Hormel's ? has the higher equity cost of capital __ ? by percentige points. (Select from the drop-down menus and round to two decimal places.)
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?
Chapter 12 Solutions
Corporate Finance
Ch. 12.1 - According to the CAPM, we can determine the cost...Ch. 12.1 - What inputs do we need to estimate a firms equity...Ch. 12.2 - How do you determine the weight of a stock in the...Ch. 12.2 - Prob. 2CCCh. 12.2 - Prob. 3CCCh. 12.3 - How can you estimate a stocks beta from historical...Ch. 12.3 - How do we define a stocks alpha, and what is its...Ch. 12.4 - Why does the yield to maturity of a firms debt...Ch. 12.4 - Prob. 2CCCh. 12.5 - Prob. 1CC
Ch. 12.5 - Prob. 2CCCh. 12.6 - Why might projects within the same firm have...Ch. 12.6 - Under what conditions can we evaluate a project...Ch. 12.7 - Prob. 1CCCh. 12.7 - Prob. 2CCCh. 12 - Prob. 1PCh. 12 - Suppose the market portfolio has an expected...Ch. 12 - Prob. 3PCh. 12 - Suppose all possible investment opportunities in...Ch. 12 - Using the data in Problem 4, suppose you are...Ch. 12 - Prob. 6PCh. 12 - Prob. 7PCh. 12 - Suppose that in place of the SP 500, you wanted to...Ch. 12 - Prob. 9PCh. 12 - You need to estimate the equity cost or capital...Ch. 12 - In mid-2012, Ralston Purina had AA-rated, 10-year...Ch. 12 - Prob. 15PCh. 12 - Prob. 16PCh. 12 - Prob. 17PCh. 12 - Your firm is planning to invest in an automated...Ch. 12 - Prob. 19PCh. 12 - Prob. 20PCh. 12 - Prob. 21PCh. 12 - Weston Enterprises is an all-equity firm with two...Ch. 12 - Prob. 24PCh. 12 - Your company operates a steel plant. On average,...Ch. 12 - Prob. 26PCh. 12 - You would like to estimate the weighted average...Ch. 12 - Prob. 22P
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