Instructions- Capital Budgeting (1)

You have been hired as a consultant by Capital Pricing Company's CFO, who wants you to help her estimate the cost of capital. You have been provided with the following data: risk free rate = 5%; market risk premium = 9.3%; and beta = 1.12. Based on the CAPM approach, what is the cost of common stock from reinvested earnings?

Estimate the weighted-average cost of capital for Home Depot (HD), Altria (MO), Caterpillar (CAT), and Intel (INTC). You can estimate the expected stock returns for these companies by using the betas shown on finance.yahoo.com. You can also use Yahoo! Finance to find the relative proportions of equity and debt for each company. Remember, though, to use the mar- ket value of the equity, not its book value. Finding the yield on the debt is a little trickier. One possibility it to log on to the Federal Reserve Bank of St. Louis site at https://fred.stlouisfed .org/ to find the current level of Treasury yields and the yield spreads (i.e., the extra yield for bonds with different ratings). An alternative is to view recent transactions at www.finra.org /industry/trace/corporate-bond-data. Note: As we write this, Moody's provides an A rating for all four companies.

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I need to calculate the cost of equity with the following data: The current appropriate risk-free rate is 6% and the return on the market is 13.5%.   levered beta is 1.29.  Using the CAPM, estimate DE’s cost of equity.  Be sure to state any additional assumptions

QUESTIONS: 1) Assuming that the risk-free rate of return is currently 3,2%, the market risk premium is 6% whereas the beta of HelloFresh SH. stock is 1.8, compute the required rate of return using CAPM. 2) Compute the value of each investment based on your required rate of return and interpret the results comparing with the market values. 3) Which investment would you select? Explain why using appropriate financial jargon (language). 4) Assume HelloFresh SH's CFO Mr. Christian Gaertner expects an earnings upturn resulting increase in growth (rate) of 1%. How does this affect your answers to Question 2 and 3? 5) AACSB Critical Thinking Questions: A) Companies pay rating agencies such as Moody's and S&P to rate their bonds, and the costs can be substantial. However, companies are not required to have their bonds rated in the first place; doing so is strictly voluntary. Why do you think they do it? (Textbook page: 198) B) What are the difficulties in using the PE ratio to value stock?…

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Capital Assets Pricing Model (CAPM) (20 points) 4. You have landed an interview with Gold & Silver Bank, and they are asking you to calculate the expected return on a series of assets they are evaluating. They provide the data below and have sent you a few additional questions. Risk-free rate 5.26% Stock Expected Return Betas ALMM 45.32% 9.2 AIR 34.10% 5.1 BLUE 61.20% 3.7 87.20% 4.5 MON Given the expected return on an asset, E(Ri), is equal to the risk-free rate, Rf, plus the risk premium. - E(R)=R₂+ [E(RM) – Rƒ] × Bi What is each stock's expected return, E(Ri)? Provide the result as x.xx%.

Quantitative Problem: You are given the following information for Wine and Cork Enterprises (WCE): rRF = 3%; rM = 7%; RPM = 4%, and beta = 1 What is WCE's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places.   %   Hide Feedback   Incorrect   Check My Work Feedback Review the SML equation to calculate the stock's required return. Be sure to follow the correct order of mathematical operations. If inflation increases by 3% but there is no change in investors' risk aversion, what is WCE's required rate of return now? Do not round intermediate calculations. Round your answer to two decimal places.   %   Hide Feedback   Incorrect   Check My Work Feedback Review the SML equation to calculate the stock's required return. Be sure to follow the correct order of mathematical operations. Remember the impact of inflation on the SML equation. Assume now that there is no change in inflation, but risk…

You want to estimate the cost of equity of firm A using CAPM. Firm A has a beta of 1.3. Assume that the return on the market portfolio is 8.52%, and the risk-free rate is 3%. What is the cost of equity of firm A? Group of answer choices There is not enough information to answer this question. 10.17% 11.74% 14.21% 12.11%

What is the appropriate required return of CSB on this financial accounting question?

Manipulating CAPM Use the basic equation for the capital asset pricing model (CAPM) to work each of the following problems. a. Find the required return for an asset with a beta of 1.59 when the risk-free rate and market return are 7% and 12%, respectively. b. Find the risk-free rate for a firm with a required return of 10.925% and a beta of 0.84 when the market return is 12%. c. Find the market return for an asset with a required return of 9.417% and a beta of 0.31 when the risk-free rate is 8%. d. Find the beta for an asset with a required return of 19.559% when the risk-free rate and market return are 10% and 17.9%, respectively. a. The required return for an asset with a beta of 1.59 when the risk-free rate and market return are 7% and 12%, respectively, is %. (Round to two decimal places.) b. The risk-free rate for a firm with a required return of 10.925% and a beta of 0.84 when the market return is 12% is %. (Round to two decimal places.) c. The market return for an asset with a…

Question 1Fill the parts in the above table that are shaded in yellow. You will notice that there are nineline items. Question 2 Using the data generated in the previous question (Question 1)a) Plot the Security Market Line b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and below the SML?d) If an investment’s expected return (mean return) does not plot on the SML, what doesit show? Identify undervalued/overvalued investments from the graph

Question 1 Fill the parts in the above table that are shaded in yellow. You will notice that there are nineline items.  Question 2Using the data generated in the previous question (Question 1);a) Plot the Security Market Line (SML) b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and below the SML? d) If an investment’s expected return (mean return) does not plot on the SML, what doesit show? Identify undervalued/overvalued investments from the graph

the information given. Assume the business's expected return on investment is 12 percent. Which option would you recommend? The rate of return on option A is |||. (Round to the nearest whole number as needed.) The rate of return on option B is %. (Round to the nearest whole number as needed.) should be recommended to the business because Suppose a firm has two business options to choose from and has asked you, a Business Mathematics student, to help it make a decision Option "A" requires an immediate cost of $25,000 along with "upgrade costs of $5,000 in year 3 and $7,500 in year 6. The returns from these investments begin in year 2 and are estimated to be $3,000 per year for 3 years, $4,000 per year for the next 3 years, and then $7,000 in years 8 and 9, respectively. The only return in year 10 is a residual value of $4,000 Option "B" requires a cost today and in years 1 and 2 of $7,000 and has estimated returns beginning in year 4 and ending in year 10 of $5,000 per year. There will…

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A firm has a choice between 2 investment proposals. Using the information in the table below, which investment will the firm choose? A firm has a choice between 2 investment proposals. Using the information in the table below, which investment will the firm choose?     Investment A Investment B Mean return 15% 15% Standard deviation of returns .9% .8% Correlation coefficient -.8 -.7

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