The board of directors of your corporation has required investment portfolio assets to return no less than 12% . The Beta relevant to your company is 1.2. Current risk free rate (TVM) is 2% and inflation is expected at 1.5% What is the minimum market rate premium you can accept on these assets in your corporate portfolio? 12% cannot be determined from data supplied 7.8 % 8.5% 7.1%

The board of directors of your corporation has required investment portfolio assets to return no less than 12% . The Beta relevant to your company is 1.2. Current risk free rate (TVM) is 2% and inflation is expected at 1.5% What is the minimum market rate premium you can accept on these assets in your corporate portfolio? 12% cannot be determined from data supplied 7.8 % 8.5% 7.1%

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter21: Dynamic Capital Structures And Corporate Valuation

Section: Chapter Questions

Problem 2MC

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Assume that you are a consultant to Thornton Inc., and you have been provided with the following data: risk 1.8. What is the cost of equity from free rate rRF = 5.5%; market risk premium RPM retained earnings based on the CAPM approach? = 6.0%; and b =
3. You have worked with your client and put together an investment portfolio based on the client's preferences for risk. The portfolio will be divided among several asset classes defined below. Asset Class Allocation Expected Return Standard Deviation of Returns 10 Year T-Bonds 37% 4.13% 0.00% International Bonds (Private Corporate) 12% 6.32% 34.23% Rusell 2000 ETF 41% 6.70% 12.32% FTSE 100 ETF 10% 32.10% 21.30% 100% a. What is the expected return for this portfolio? Provide the result as x.xx%. b. What is the expected return for the portfolio if you decide not to invest in treasury bonds? Provide the result as x.xx%. c. What asset class would you eliminate to maximize expected return? Explain why.
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Q2. Suppose you are the chief financial officer of Toktik Co. and you are trying to determine the optimal capital structure for the company using the cost of capital approach. On the day of this exam, you have collected the following company and market data: The beta of the company is 2.6; • 10-year Treasury bond rate is 1.6% and the current market equity risk premium is 6.9%; • The company's current bond rating is BB by Standard & Poor's; • The firm currently has 5.2 billion shares outstanding with share price at $120 and the firm's market value of debt is $264 billion • The company's marginal tax rate is 35%. Also you are given the following table concerning the latest information on bond rating and the corresponding default spread: Default spread Rating AAA 0.69% AA 0.85% A+ 1.07% A 1.18% А- 1.33% BBB 1.71% BB+ 2.31% BB 2.77% B+ 4.05% 4.86% В- 5.94% ССС 9.46% CC 9.97% 13.09% D 17.44% Required: a) Briefly explain, by referencing relevant capital structure theories, the mechanisms…
Here are data on two companies. The T-bill rate is 4% and the market risk premium is 6%. Company $1 Discount Store Everything $5 Forecasted return 12% 11% Standard deviation of returns 8% 10% Beta 1.5 1.0 What would be the fair return for each company according to the capital asset pricing model (CAPM)?
Please do not give solution in image format thanku A firm has an unlevered pr asset beta of 1.0. This firm is currently financed with $100 million of debt and $400 million of equity (current market values). The book value of the common stock is $250 million. The firms corporate tax rate is 25%. The required return on the market index portfolio is 9% and the risk free rate of interest is 3%. The beta of the firms debt is assumed to be 0. Calculate the after-tax WACC and obviously those items that are essetial to calculating WACC. Calculate the firms required rate of return on equity(not WACC) if the risk free rate increases from 3% to 4%, but the market risk premium remains the same as before.
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Dhofar Silicon Services has a Beta = 2.42 The risk free rate on a treasury bill is currently 8.2% and the market return has averaged 16%.What is the cost of equity ? O a. All the given answers in this question are not correct O b. 0.46 O c. 0.2708 O d. 0.19 O e. 0.4692 | https://moodle1.du.edu ENG ailo 91% F2 F3 F10 F4 F5 F7 F8 F9 @ %23 24 % & 2 3 4. 6 8. R Y U 10 A S DEFJ GYH1J - K C V BY NiM IS Alt この > 1.