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How much is the cost of equity for TAR Corp?

How much is the cost of equity for TAR Corp?

Essentials Of Investments
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
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Analysts want to estimate the cost of equity for TAR Corporation to use later in a short-term (1-year) project valuation analysis. They believe that a beta based on analyses of recent past returns is appropriate to assess TAR's risk level in the future. They found from recent stock return analyses that beta equals to 2.34. The historical market risk premium is 6.90%. Treasury Yield 1-year T-STRIPS Yield 2-year T-STRIPS Yield 10-year T-STRIPS Yield How much is the cost of equity for TAR Corp? 0.25% 1.45% 2.50%
Transcribed Image Text:Analysts want to estimate the cost of equity for TAR Corporation to use later in a short-term (1-year) project valuation analysis. They believe that a beta based on analyses of recent past returns is appropriate to assess TAR's risk level in the future. They found from recent stock return analyses that beta equals to 2.34. The historical market risk premium is 6.90%. Treasury Yield 1-year T-STRIPS Yield 2-year T-STRIPS Yield 10-year T-STRIPS Yield How much is the cost of equity for TAR Corp? 0.25% 1.45% 2.50%
O a. 15.81% O b. 18.65% O c. Beta of 2.34 is unrealistic because is above 2, therefore we cannot calculate the cost of equity. O d. 16.40% O e. 6.90%
Transcribed Image Text:O a. 15.81% O b. 18.65% O c. Beta of 2.34 is unrealistic because is above 2, therefore we cannot calculate the cost of equity. O d. 16.40% O e. 6.90%
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