Problem 13-1 Calculating Cost of Equity The Swanson Corporation's common stock has a beta of 1.5. If the risk-free rate is 5.5 percent and the expected return on the market is 13 percent, what is the company's cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity capital %

Problem 13-1 Calculating Cost of Equity The Swanson Corporation's common stock has a beta of 1.5. If the risk-free rate is 5.5 percent and the expected return on the market is 13 percent, what is the company's cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity capital %

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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QUESTION 42 company s estimating its optimal capital structure. Now the company has a capital structure that consists of 20% debt and 80% equity, based on market values (debt to equity D/S ratio is 0.25). The risk-free rate (RF) is 5% and the market risk premium (M-[RF) is 6%. Currently the company's cost of equity, which is based on the CAPM, is 14% and its tax rate is 20%. Find the firm's current leveraged beta using the CAPM O 1.0 O 1.5 O 1.6 O 1.7 QUESTION 43 Based on the information from Question 42, find the firm's unleveraged beta using the Hamada Equation O 0.95 O 1.0 O 1.25 O 1.35 QUESTION 44 Based on the information from Question 42 and 43, what would be the company's new leveraged beta if it were to change its capital structure to 50% debt and 50% equity (D/S=1.0) using the Hamada Equation? O 1.25 O 1.35 O 1.95 O 2.25 QUESTION 45 Based on the information from Question 42 ~ 44, what would be the company's new cost of equity if it were to change its capital structure to 50%…
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Question 13 Burke Tires just paid a dividend of Do-$1.3. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 4% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What is the best estimate of the stock's current market value?
Module 6 Question 2 (Individual or component costs of capital) Compute the cost of capital for the firm for the following: a. Currently bonds with a similar credit rating and maturity as the firm's outstanding debt are selling to yield 8.00 percent while the borrowing firm's corporate tax rate is 34 percent. b. Common stock for a firm that paid a $1.05 dividend last year. The dividends are expected to grow at a rate of 5.0 percent per year into the foreseeable future. The price of this stock is now $25.00. c. A bond that has a $1,000 par value and a coupon interest rate of 12.0 percent with interest paid semiannually. A new issue would sell for $1,150 per bond and mature in 20 years. The firm's tax rate is 34 percent. d. A preferred stock paying a dividend of 7.0 percent on a $100 par value. If a new issue is offered, the shares would sell for $85.00 per share. a. The after-tax cost of debt debt for the firm is ________%.
Question 1 0 out of 2 points The expected return on the market is 12.07%, the risk-free rate is 4.94%, and the tax rate is 22.00%. Semper Fun Sports has 300,000 common shares outstanding that are priced at $41.90 per share and have an expected return of 16.99% and an expected real return of 14.96%. Last year, Semper Fun Sports common stock had a return of 11.04%. The company also Finally, the company has 10,000 bonds outstanding with a coupon 400,000 shares of preferred stock outstanding that are priced at $15.65 per share and have an expected return of 13.24% and an expected real return of 11.00%. Last year, Semper Fun Sports preferred stock had a return of 8.92%. rate of 9.50%, yield-to-maturity of 4.35%, current yield of 8.79%, face value of $1,000.00, and price of $1,300.00. What is the weighted average cost of capital for Semper Fun Sports?
Question three The share price of a company is 200p. Its expected next dividend is 5p. The dividend (and share price) growth rate is expected to be 4% p.a. The risk-free interest rate is 4.5% p.a. The share has a beta of 1.2 and the expected rate of return on the stock market as a whole is 8.5% p.a. (a) Estimate the expected (forecast) rate of return on the share. (b) Estimate the required rate of return. (c) Consider whether the share is suitable for purchase.
Problem 12-16 CAPM and Expected Return (LO2) A share of stock with a beta of 0.82 now sells for $58. Investors expect the stock to pay a year-end dividend of $2. The T-bill rate is 5%, and the market risk premium is 8%. a. Suppose investors believe the stock will sell for $60 at year-end. Calculate the opportunity cost of capital. Is the stock a good or bad buy? What will investors do? b. At what price will the stock reach an “equilibrium” at which it is perceived as fairly priced today? Complete this question by entering your answers in the tabs below. Required A Required B Suppose investors believe the stock will sell for $60 at year-end. Calculate the opportunity cost of capital. Is the stock a good or bad buy? What will investors do? Note: Do not round intermediate calculations. Round your opportunity cost of capital calculation as a percentage rounded to 2 Opportunity cost of capital The stock is a buy and the investors Show more
8-21 capital of $500 million invested in five stocks: Stock Investment Stock's Beta Coefficient A $160 million 0.5 В 120 million 1.2 80 million 1.8 D 80 million 1.0 60 million 1.6 Kish's beta coefficient can be found as a weighted average of its stocks' betas. The risk-e rate is 6%, and you believe the following probability distribution for future market retums is realistic: TT Probability Market Return 0.1 - 28% 0.2 0.4 12 0.2 30 0.1 50 What is the equation for the security market line (SML)? (Hint: First, determine the expected market return.) Calculate Kish's required rate of return. c. Suppose Rick Kish, the president, receives a proposal from a company seeking new capital. The amount needed to take a position in the stock is $50 million, it has ar expected return of 15%, and its estimated beta is 1.5. Should Kish invest in the new company? At what expected rate of return should Kish be indifferent to purchasang the stock? а. b.
pls need help answering in Excel.
Problem 9.16 The preferred stock of Axim Corp. is currently selling at $48.95. If the required rate of return is 11.6 percent, what is the dividend paid by this stock? (Round answer to 2 decimal places, e.g. 15.25.) Dividend paid

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