Nestlé of Switzerland Revisited. Nestlé of Switzerland is revisiting its cost of equity analysis. As a result of extraordinary actions by the Swiss Central Bank, the Swiss bond index yield (10-year maturity) has dropped to a record low of 0.57%. The Swiss equity markets have been averaging 7.80% returns, while the Financial Times global equity market returns, indexed back to Swiss francs, stands at 8.31%. Nestlé's corporate treasury staff has estimated the company's domestic beta at 0.836, but its global beta (against the larger global equity market portfolio) at 0.486. a. What is Nestlé's cost of equity based on the domestic portfolio for a Swiss investor? b. What is Nestle's cost of equity based on a global portfolio for a Swiss investor?

Nestlé of Switzerland Revisited. Nestlé of Switzerland is revisiting its cost of equity analysis. As a result of extraordinary actions by the Swiss Central Bank, the Swiss bond index yield (10-year maturity) has dropped to a record low of 0.57%. The Swiss equity markets have been averaging 7.80% returns, while the Financial Times global equity market returns, indexed back to Swiss francs, stands at 8.31%. Nestlé's corporate treasury staff has estimated the company's domestic beta at 0.836, but its global beta (against the larger global equity market portfolio) at 0.486. a. What is Nestlé's cost of equity based on the domestic portfolio for a Swiss investor? b. What is Nestle's cost of equity based on a global portfolio for a Swiss investor?

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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Mark Washington, CFA, is an analyst with BIC. One year ago, BIC analysts predicted that the U.S. equity market would most likely experience a slight downturn and suggested delta-hedging the BIC portfolio. As predicted, the U.S. equity markets did indeed experience a downturn of approximately 4% over a 12-month period. However, portfolio performance for BIC was disappointing, lagging its peer group by nearly 10%. Washington has been told to review the options strategy to determine why the hedged portfolio did not perform as expected. 13. BIC owns 51,750 shares of Smith & Oates. The shares are currently priced at $69. A call option on Smith & Oates with a strike price of $70 is selling at $3.50 and has a delta of 0.69. What is the number of call options necessary to create a delta-neutral hedge? 14. Return to the previous problem. Will the number of call options written for a delta-neutral hedge increase or decrease if the stock price falls? 15. Which of the following…
Little Lemon Co. is identifying the value of its equity using the enterprise value approach as they have never issued dividends to date because the Company is still at its early stages. With this, they have the following available information:The government's real free rate for its debt securities is estimated at 3.5% with an estimated inflation premium of 1.5%.The target capital structure of Little Lemon is at 60% debt and 40% equityLittle Lemon was able to determine that its cost of debt is estimated as:With 3 years maturity - 6.50%With 4 years maturity - 7.0%With 5 years maturity - 8.0%The following are the information about the current debts issued by Little LemonA 3-year maturity instrument carries a Php500,000 face value and 8.0%couponA 5-year maturity instrument carries a Php500,000 face value and 8.0%couponConsidering the current crisis, equity investors generally demand a 3.5%premium over government securitiesLittle Lemon's estimated beta is at 1.2The following summarizes the…
Little Lemon Co. is identifying the value of its equity using the enterprise valueapproach as they have never issued dividends to-date because the Company isstill at its early stages. With this, they have the following available information:The government's real free rate for its debt securities is estimated at 3.5% withan estimated inflation premium of 1.5%.The target capital structure of Little Lemon is at 60% debt and 40% equityLittle Lemon was able to determine that its cost of debt is estimated as:With 3 years maturity - 6.50%With 4 years maturity - 7.0%With 5 years maturity - 8.0%The following are the information about the current debts issued by Little LemonA 3-year maturity instrument carries a Php500,000 face value and 8.0%couponA 5-year maturity instrument carries a Php500,000 face value and 8.0%couponConsidering the current crisis, equity investors generally demand a 3.5%premium over government securitiesLittle Lemon's estimated beta is at 1.2The following summarizes the…
Hennessy & Associates manages a $30 million equity portfolio for the multimanager Wilstead Pension Fund. Jason Jones, financial vice president of Wilstead, noted that Hennessy had rather consistently achieved the best record among the Wilstead’s six equity managers. Performance of the Hennessy portfolio had been clearly superior to that of the S&P 500 in four of the past five years. In the one less-favorable year, the shortfall was trivial.Hennessy is a “bottom-up” manager. The firm largely avoids any attempt to “time the market.” It also focuses on selection of individual stocks, rather than the weighting of favored industries.There is no apparent conformity of style among Wilstead’s six equity managers. The five managers, other than Hennessy, manage portfolios aggregating $250 million made up of more than 150 individual issues.Jones is convinced that Hennessy is able to apply superior skill to stock selection, but the favorable returns are limited by the high degree of…
The Japanese stock market bubble peaked at 54,000 in 1989. Two and a half years later it had fallen to 24,600. What was the percentage decline? (Negative answer should be indicated with a minus sign. Round your answer to 2 decima places.) Market decline %
Little Lemon Co. is identifying the value of its equity using the enterprise value approach as they have never issued dividends to-date because the Company is still at its early stages. With this, they have the following available information: The government's real free rate for its debt securities is estimated at 3.5% with an estimated inflation premium of 1.5%. The target capital structure of Little Lemon is at 60% debt and 40% equity Little Lemon was able to determine that its cost of debt is estimated as: With 3 years maturity - 6.50% With 4 years maturity - 7.0% With 5 years maturity - 8.0% The following are the information about the current debts issued by Little Lemon A 3-year maturity instrument carries a Php500,000 face value and 8.0% coupon A 5-year maturity instrument carries a Php500,000 face value and 8.0% coupon Considering the current crisis, equity investors generally demand a 3.5% premium over government securities Little Lemon's estimated beta is at 1.2 1.…
You are analyzing a stock which is currently being traded at Rs. 150.0 in anticipation of its dividend of Rs. 12.0 expected at the end of ongoing year. The stock is 50 percent more volatile than the broader equity market, which is offering an equity risk premium of roughly 6% per annum. The monetary policy of the country is also expansionary due to which treasury bills are offering a meagre returns of 5% per annum and are not being considered as an attractive investment opportunity for most of the investors. You are skeptical about the current price of the stock and wondering what growth projections have been used by the market on sustainable basis to value the stock?
1) In early 2000, the Dow Jones Industrial Average rose above the 11,000 level. If the Dow were to fall to 7,000, who would gain the most: investors who had bought call options, investors who had bought put options, or inventors who had sold put options ? Who would be hurt the most ? 2) Suppose that you believe the fundamental value of Wal-Grey stock is about to rise from $50 to $100 because of its new management team. You have $20,000 that you can risk in the market, and you can think of four possible ways to profit: a)use your $20,000 to buy shares of Wal-Grey b)borrow (at a 6% interest rate) an additional $20,000 on margin to buy a total of $40,000 worth of Wal-Grey stock c) enter into a futures contract to buy 400 shares of Wal-Grey in one year for $21,200 (you can invest safetly for a year at a 6% interest rate) d)buy a call option (for every $1000 you spend on call options, you have the right to buy 100 shares of Wal-Grey at the current price of $50 per share.) Calculate how much…
Slush Corporation has two bonds outstanding, each with a face value of $3.1 million. Bond A is secured on the company’s head office building; bond B is unsecured. Slush has suffered a severe downturn in demand. Its head office building is worth $1.11 million, but its remaining assets are now worth only $2 million. If the company defaults, what payoff can the holders of bond B expect?
Which of the following statement reflects the true meaning of the present Value? (2) L Discounting to today's value Projecting the future values . Presenting cash flows in compounded values N. Converting monetary values in to an expected interest rate Choose the correct option below; O Only II OBoth II & II O None of the above O Only II Only I
As a result of a recession Dafen plc has recorded losses over the last three years and has been forced to increase its borrowing. The board of directors has decided that the company cannot increase its debt-equity ratio further and it has been decided to reduce its level of debt. On this basis it has decided to undertake a rights issue to raise £200 million. The company’s shares are trading at £4.00 and it is proposed to make the rights issue at a discount of 20 per cent to this price. The company has 250 million shares outstanding. Assume the investor chooses to sell their rights. How many shares in the company does the investor hold after the shares have gone ex-rights?

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