1. You are analyzing Tiffany & Company, an upscale retailer, and find that the regression estimate of the firm's beta is 0.75; the standard error for the beta estimate is 0.05. You also note that the average unlevered beta of comparable specialty retailing firms is 1.15. Tiffany is rated BBB and that the default spread for BBB rated firms is 100bp over the Treasury bond rate. Tiffany has a debt/equity ratio of 20%. The marginal tax rate for Tiffany is 40%. Historical average Treasury bond rate is 6.5% and the US market risk premium is 5.5%. Estimate the cost of equity, cost of debt, and the cost of capital for Tiffany.

1. You are analyzing Tiffany & Company, an upscale retailer, and find that the regression estimate of the firm's beta is 0.75; the standard error for the beta estimate is 0.05. You also note that the average unlevered beta of comparable specialty retailing firms is 1.15. Tiffany is rated BBB and that the default spread for BBB rated firms is 100bp over the Treasury bond rate. Tiffany has a debt/equity ratio of 20%. The marginal tax rate for Tiffany is 40%. Historical average Treasury bond rate is 6.5% and the US market risk premium is 5.5%. Estimate the cost of equity, cost of debt, and the cost of capital for Tiffany.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Some investors use the Sharpe ratio as a way of comparing the benefits of owning shares of stock in a company to the risks. The Sharpe ratio of a stock is defined as the ratio of the difference between the mean return on the stock and the mean return on government bonds (called the risk-free rate rf ) to the SD of the returns on the stock. The mean return on government bonds is rf = 0.03% per day. The table below describes the daily return of three stocks. Date APPLE. TESLA GM 01/10/20 0.85% 4.46% 2.67% 02/10/20 -3.23% - 7.38% 0.26% 05/10/20 3.08% 2.55% 1.64% 06/10/20 -2.87% -2.75% -1.81% 07/10/20 1.70% 2.73% 4.01% 08/10/20 -0.10% 0.15% 1.87% 09/10/20 1.74% 1.90% -0.16% 12/10/20 6.35% 1.91% 0.16% 13/10/20 -2.65% 0.98% -1.06% 14/10/20 0.07% 3.28% -0.63% 15/10/20 -0.40% -2.69% 2.90% 16/10/20 -1.40% -2.05%…
5. Last year, Rocket Inc. earned a 19% return. Farmer's Corp. earned 11%. The overall market return last year was 16%, and the risk-free rate was 2%. If Rocket stock has a beta of 1.8 and Farmer's has a beta of 0.5, which stock performed better once you take risk into account? Review Only Click the icon to see the Worked Solution. Rocket's expected return is %. (Enter as a percentage and round to one decimal place.) Farmer's expected return is %. (Enter as a percentage and round to one decimal place.) Which stock performed better once you take risk into account? (Select the best answer below.) A. Given its beta, Rocket should have earned a much higher return than it did (11% vs 19%). Farmer's, on the other hand, earned a higher return than we would have expected (27.2% vs 9.0%). So taking risk into account, Rocket was the better stock. B. Given its beta, Rocket should have earned a much higher return than it did (27.2% vs 19%). Farmer's, on the other hand, earned a higher return than…
utilities versus Petroleum and natural gas 0.77 versus 1.31 food products (grocery stores)versus Apparel(retailers) 0.68 versus 1.09 Banking (Depository Institutions) versus Financial Trading 0.76 versus 1.09 (Security and commodity Brokers) For each matched pair of industries, use the CAPM to compute the required rate of return on equity capital for the median firm in each industry. Assume that the risk-free rate of return is 4.0% and the market risk premium is 5.0%
A. You are analyzing the price/book value ratios for seven firms in the hospitality industry, relative to returns on equity and required rates of return. The treasury bond rate is 6% and the market premium is 3%. The data on the companies are the following: Company P/BV ROE Beta A 0.50 9.0% 0.75 1.10 8.5% 0.80 1.20 7.0% 1.30 0.65 12.5% 0.70 1.50 16.0% 0.85 0.90 10.0% 1.40 1.00 18.5% 0.85 i. ii. B C D E F G Compute the average P/BV ratio, return on equity, and beta for the industry. Based upon these averages, is the hospitality industry under or overvalued according to book values assuming that the industry overall is in stable growth?
i need the answer quickly
1)Please draw graph and show upward and downward yield curves, Define them briefly. 2)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.
GE, Inc has a beta of -0,45. When S&P500 index increases by 8% and the T-bill rate is 1%. What is the expected return of the company? Please use CAPM to solve.
You are trying to estimate the beta of a private company, whose debt-to-equity ratio is 0.72. Its corporate tax rate is 30%. Its public competitor has a beta of 1.5 and no debt. Your beta estimate is
Please show proper steps thanks. All parts.
You are evaluating the expected performance of two stocks, Alibaba and Bank of China.You gathered the following informationRisk-free rate = 5%Expected return for a Hong Kong market = 11.5%Beta of Alibaba = 1.5Beta of Bank of China = 0.8 Based on your analysis, you forecast the return on these 2 stocks are 13.25% for Alibaba and11.25% for Bank of China.i) Calculate the required rate of return for Alibaba and Bank of Chinaii) Indicate whether each stock is undervalued, fairly valued or overvalued.
Do It correctly with step by step explanation.
Note:- • Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. • Answer completely. • You will get up vote for sure.

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