Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
15th Edition
ISBN: 9780134476315
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Textbook Question
Chapter 9, Problem 9.9P
Cost of common stock equity:
- a. Determine the risk premium on Netflix common stock.
- b. Determine the required return that Netflix common stock should provide.
- c. Determine Netflix’s cost of common stock equity using the CAPM.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Cost of common stock equity: CAPM Netflix common stock has a beta, b, of 0.8. The risk-free rate is 3%, and the market return is 10%.
a. Determine the risk premium on Netflix common stock.
b. Determine the required return that Netflix common stock should provide.
c. Determine Netflix’s cost of common stock equity using the CAPM.
Netflix common stock has a beta, b, of 1.5.The risk-free rate is 6%,and the market return is 12%.
a. Determine the risk premium on Netflix common stock.
b. Determine the required return that Netflix common stock should provide.
c. Determine Netflix's cost of common stock equity using the
CAPM.
___________________________________________________________________________
a.The risk premium on Netflix common stock is _______%.(Round to one decimal place)
b. The required return that Netflix common stock should provide is ____%.(Round to one decimal place)
c. Netflix's cost of common stock equity using the CAPM is ______%.(Round to one decimal place)
Netflix common stock has a beta, b, of 1.3. The risk-free rate is 5%,and the expected market return is 11%.
a. Determine the risk premium on Netflix common stock.
b. Determine the required return that Netflix common stock should provide.
c. Determine Netflix's cost of common stock equity using the
CAPM.
Chapter 9 Solutions
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
Ch. 9.1 - What is the cost of capital?Ch. 9.1 - Prob. 9.2RQCh. 9.1 - Prob. 9.3RQCh. 9.1 - What are the typical sources of long-term capital...Ch. 9.2 - Prob. 9.5RQCh. 9.2 - Prob. 9.6RQCh. 9.2 - Prob. 9.7RQCh. 9.3 - How would you calculate the cost of preferred...Ch. 9.4 - What premise about share value underlies the...Ch. 9.4 - How do the constant-growth valuation model and...
Ch. 9.4 - Why is the cost of financing a project with...Ch. 9.5 - Prob. 9.13RQCh. 9.5 - Prob. 9.14RQCh. 9.5 - Prob. 9.15RQCh. 9 - In the chapter opener you learned that Johnson ...Ch. 9 - Learning Goals 3, 4, 5, 6 ST9-1 Individual...Ch. 9 - Prob. 9.1WUECh. 9 - Prob. 9.2WUECh. 9 - Duke Energy has been paying dividends steadily for...Ch. 9 - Weekend Warriors Inc. has 35% debt and 65% equity...Ch. 9 - Oxy Corporation uses debt, preferred stock, and...Ch. 9 - Concept of cost of capital and WACC Mace...Ch. 9 - Prob. 9.2PCh. 9 - Before-tax cost of debt and after-tax cost of debt...Ch. 9 - Prob. 9.4PCh. 9 - The cost of debt Gronseth Drywall Systems Inc. is...Ch. 9 - After-tax cost of debt Bella Wans is interested in...Ch. 9 - Cost of preferred stock Taylor Systems has just...Ch. 9 - Cost of preferred stock Determine the cost for...Ch. 9 - Cost of common stock equity: CAPM Netflix common...Ch. 9 - Retained earnings versus new common stock Using...Ch. 9 - The effect of tax rate on WACC K. Bell Jewelers...Ch. 9 - WACC: Market value weights The market values and...Ch. 9 - WACC: Book weights and market weights Webster...Ch. 9 - WACC and target weights After careful analysis,...Ch. 9 - Cost of capital Edna Recording Studios Inc....Ch. 9 - Calculation of individual costs and WACC Dillon...Ch. 9 - Prob. 9.18PCh. 9 - Calculation of individual costs and WACC Lang...Ch. 9 - Weighted average cost of capital (WACC) American...Ch. 9 - Prob. 9.21PCh. 9 - Eco Plastics Company Since its inception, Eco...
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
- Netflix common stock has a beta, b, of 1.7. The risk-free rate is 6%, and the market return is 11%. a. Determine the risk premium on Netflix common stock. b. Determine the required return that Netflix common stock should provide. c. Determine Netflix's cost of common stock equity using the CAPM.arrow_forwardCost of common stock equity: CAPM Brigham Jewellery Corporation common stock has a beta, β, of 1.8. The risk-free rate is 5%, and the market return is 16%.Determine Brigham’s cost of common stock equity using the CAPMarrow_forwardRan Company wants to determine its cost of common stock equity using the CAPM. The company's investment advisors indicate that the firm’s beta is equals to 1.3;the risk-free rate is 6%; and the market return is 10%. (Do not round off between computations. Round off the final answer to two decimal places. Example of writing your answer 2.58%)arrow_forward
- Subject :- Finance Preston knows his firm's stock has a beta of 1.17, and he'd like to use the CAPM to estimate the cost of equity. If the expected market risk premium is 8.7% and the current T-Bill rate is 2.5%, what should he use as the estimate for the cost of equity? Enter your answer as a decimal and show 4 decimal places. For example, if your answer is 15.55%, enter .1555.arrow_forwardou own $14,504 of Opsware, Inc. stock that has a beta of 3.85. You also own $20,384 of Lowe’s Companies (beta = 1.89) and $4,312 of New York Times (beta = 1.17). Assume that the market return will be 16 percent and the risk-free rate is 7 percent.What is the market risk premium? ___% What is the risk premium of each stock? (Round your answers to 2 decimal places.) Opsware’s risk premium _____.__ % Lowe’s risk premium _____.__ % New York Time's risk premium _____.__ % What is the risk premium of the portfolio? (Do not round intermediate calculations and round your final answer to 2 decimal places.) Portfolio Risk Premium: ___.__%arrow_forwardCompany C’s stock has beta 1.2, the risk-free rate is 6%, and the market expected return is 11%, what will be Company C’s cost of equity using the Capital Asset Pricing Model (CAPM)? The Company C’s last dividend per share was $2. Using Dividend Growth Model (DGM) find the price of the company C’s stock when the dividend growth rates are:arrow_forward
- Express Steel Corporation wishes to calculate its cost of common stock equity, by using the capital asset pricing model (CAPM). The firm’s investment advisors and its own analysts indicate that the risk-free rate equals 9,1%; the firm’s beta equals 0,75; and the market return equals 16%. Please estimate the cost of common stock equity by using CAPM.arrow_forwardUsing the equity asset valuation model (CAPM) equation, determine the required return for the shares of the following companies, if the market return is 7.50% (Rm = 7.50%) and the risk-free asset return is 1.25% (RF = 1.25%). You must show all counts. Stock Beta SKT 0.65 COST 0.90 SU 1.42 AMZN 1.57 V 0.94arrow_forwardCompany C’s stock has beta 1.2, the risk-free rate is 6%, and the market expected return is 11%, what will be Company C’s cost of equity using the Capital Asset Pricing Model (CAPM)? The Company C’s last dividend per share was $2. Using Dividend Growth Model (DGM) find the price of the company C’s stock when the dividend growth rates are: a. 0% b. 5%arrow_forward
- The common stock of Anthony Steel has a beta of 1.5. The risk-free rate is 6 percent and the market risk premium (rm - rf) is 6 percent. What is the company's cost of common stock, rs? Express your answer in percentage (without the % sign) and round it to two decimal placesarrow_forwardWildhorse Industries common stock has a beta of 1.8. If the market risk-free rate is 4.6 percent and the expected return on the market is 8.6 percent, what is Wildhorse’s cost of common stock? (Round answer to 1 decimal places, e.g. 15.2%.) Cost of common stock enter the Cost of common stock in percentages rounded to 1 decimal place %arrow_forwardNEED ALL THREE PARTS....DON'T ATTEMPT IF YOU WILL NOT SOLVE ALL THREE PARTS Netflix common stock has a beta, b, of 1.8. The risk-free rate is 8%, and the market return is 14%. a. Determine the risk premium on Netflix common stock. b. Determine the required return that Netflix common stock should provide. c. Determine Netflix's cost of common stock equity using the CAPM.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
What is WACC-Weighted average cost of capital; Author: Learn to invest;https://www.youtube.com/watch?v=0inqw9cCJnM;License: Standard YouTube License, CC-BY