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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

Using Past Information to Estimate Required Returns

Use online resources to work on this chapter's questions. Please note that website information changes over time, and these changes may limit your ability to answer some of these questions.

Chapter 8 discussed the basic trade-off between risk and return- In the capital asset pricing model (CAPM) discussion, beta was identified as the correct measure of risk for diversified shareholders. Recall that beta measures the extent to which the returns of a given stock move with the stock market. When using the CAPM to estimate required returns, we would like to know how the stock will move with the market in the future, but because we don’t have a crystal ball, we generally use historical data to estimate this relationship with beta.

As mentioned in Web Appendix 8A, beta can be estimated by regressing the individual stock's returns against the returns of the overall market. As an alternative to running our own regressions, we can rely on reported betas from a variety of sources. These published sources make it easy for us to readily obtain beta estimates for most large publicly traded corporations. However, a word of caution is in order. Beta estimates can often be quite sensitive to the time period in which the data are estimated, the market index used, and the frequency of the data used. Therefore, it is not uncommon to find a wide range of beta estimates among the various Internet websites.

6. What is the company’s current dividend yield? What has been its total return to investors over the past year? Over the past 3 years? (Remember that total return includes the dividend yield plus any capital gains or losses.) You will have to go to more than one Website to find this information. MSN Money (www.msn.com/en-us/money/markets) gives DPS information over the past 4 years on the detailed Income Statement Financials page. (Be sure to enter the ticker symbol in the quote search box located in the middle of your screen—not the web search box at tire top of your screen.) You can use the price information to calculate dividend yield and capital gains yield Yahoo! Finance provides historical price information.

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Summary Introduction

To identify: The Company’s total return and dividend.

Beta coefficient:

Beta coefficient measures the sensitivity of the stock in comparison with the market. It is a historical measure. It means it only takes past information into account.

Explanation
  • The company dividend yield is $10.00.
  • The CL company total return in 2017 is 17.73%...

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