13. The appropriate WACC of a firm is 6.43%. With risk-free rate of 4%,market return of 8%, prevailing credit spread of 3%, tax rate of 30%and Equity ratio of 30%, compute for the volatility of stocks or Beta.a.1.00b. 1.25С.1.50d. 1.75

Correct option is C. 1.50 Volatility of stocks or beta is 1.50 Explanation: Step 1 : Computation…

Answered: 13. The appropriate WACC of a firm is…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Risk free rate = 5.00%; market return = 11.00%; and beta = 1.05. How much is the firm's cost of equity based on the CAPM? 11.30% 11.64% 11.99% 12.35%
Suppose the 10-year T-bond rate is 3%. The Market Risk Premium is 5%. The equity beta for the firm is 1.5. What is the cost of equity using the Capital Asset Pricing Model (CAPM)? a. 7.5% b. 9.5% c. 10.5%
Dhofar Packaging has a Beta = 1.8. The risk free rate on a treasury bill is currently 3.55% and the market return has averaged 22.85%.Calculate cost of equity Select one: a. 34.77% b. None c. 35% d. 38.29% e. 37.50%
1. Using capital asset pricing model, compute for the cost of equity with risk-free rate of 4%, market return on 8%, beta of 1.5 and tax rate of 30%. 2. With risk-free rate of 5%, beta of 1.5, market return of 8%, prevailing credit spread (rate applied on debt on top of risk-free rate) of 3%, tax rate of 30% and equity ratio of 30%, compute for the weighted average cost of capital. 3. The appropriate WACC of a company is 8%. With risk-free rate of 4%, market return of 10%, prevailing credit spread of 2%, tax rate of 30% and equity ratio of 40%, compute the beta.
Omantel has a Beta = 1.5, the risk free rate on a treasury bill is currently 4.25% and the market return has averaged 18.45%.Calcualte cost of equity. Select one: a. 22.45% b. 25.55% c. 21.45% d. 21.34% e. None
8. Stocks A and B have the following data. The market risk premium is 5.0% and the risk-free rate is 4%. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? A B Beta 1.20 0.80 Constant dividend growth rate 7.00% 4.00% (a) Stock B must have a higher capital gain yield than Stock A. (b) Stock B must have a higher dividend yield than Stock A. (c) Stock B’s dividend yield is higher than its expected dividend growth rate. (d) Stock B must have the higher required return. (e) The expected return of Stock A is 11%.
11f
Dhofar Power company has a beta of 1.5. The risk free rate on a treasury bill is currently 4% and the market return has averaged 18 %.What is the cost of the equity. Select one: a. 24 % b. None of these c. 25 % d. 22 %
22.Consider the following simplified APT model: Factor Expected Risk Premium Market 6.4% Interest Rate -0.6% Yield Spread 5,1% Factor Risk Exposures Market Interest Rate Yield Spread Stock Stock (b1) (62) (b3) P. 1.0 -2.0 -0.2 1.2 0.3 0.3 0.5 1.0 a) Calculate the expected return for the above stocks. Assume risk free rate is 5%. Consider a portfolio with equal investments in stocks P, P2, and P3 b) What are the factor risk exposures for the portfolio? c) What is the portfolio's expected return?
6. Life Inc's stock has an expected return of 13%, a beta of 1.25, and is in equilibrium. If the risk-free rate is 6%, what is the market risk premium? a) 5.6% b) 6.5% c) 5.8% d) 4.5%
5.2 (q2) A share has an expected return of 20.84%. The risk-free rate of return is 3.5% and the market risk premium is 10.2%. What is the beta of the share? a. 16.28% b. 18.26% c. 13.90% d. 13.88%
Assume that the CAPM holds, and refer to the graph below. What is the correlation between stocks B and C? Expected Return [E())] 35% 30% 25% CML (Capital Market Line) 20% C MVE 15% 10% 5% 0% 0% 10% 20% a. The correlation is 0.375 ○ b. The correlation is zero c. The correlation is 0.573 O d. The correlation is 0.753 30% A B 40% 50% 60% Standard Deviation [SD(r)]

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13. The appropriate WACC of a firm is 6.43%. With risk-free rate of 4%, market return of 8%, prevailing credit spread of 3%, tax rate of 30% and Equity ratio of 30%, compute for the volatility of stocks or Beta. a. 1.00 b. 1.25 C. 1.50 d. 1.75