ExampleThe following data were assembled for General Stores Corporation:Equity (Market Risk) Premium: 4.9%Size Premium: 1.8%Value Premium: 3.0%Current Risk-Free Rate: 3.5%Market Beta: 1.05Size Beta: -0.315Value Beta: -0.224Using the data above, estimate General Stores' cost of equity using the Fama-French Model.

The return that equity investors need to cover the risk of owning a company's stock is known as the…

Answered: The following data were assembled for…

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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If the D/E ratio of a firm is 1.4, what is the firm's weight on equity? Hint: the formula is on your excel project sheet. Use decimal notation (14.26% would be 14.26).
Please see below Company W's current financial ratios: Dividend payout ratio = 66% Internal growth rate 11% The ratio of total assets to sales = 1% The profit margin 8.6% If the management of Company W wants to maintain the above ratios at their current levels, what would be the debt-equity ratio? Multiple Choice 6.75 2.39 5.75 4.75 O 3.75
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Here are data on two companies. The T-bill rate is 5.6% and the market risk premium is 7.1%. $1 Discount Store Everything $5 13% 18% Company Forecast return. Standard deviation of returns Beta Company $1 Discount Store Everything $5 Expected Return 14% 16% Required: What would be the expected rate of return for each company, according to the capital asset pricing model (CAPM)? (Round your answers to 2 decimal places.) % % 1.6 1.0
firm with a debt ratio of 0.75, will have an equity multiplier of ____. a. 0.25 b. 4.00 c. 0.75 d. 1.00
If we know that a firm has a net profit margin of 4.3%, total asset turnover of 0.77, and a financial leverage multiplier of 1.37, what is its ROE? What is the advantage to using the DuPont system to calculate ROE over the direct calculation of earnings available for common stockholders divided by common stock equity? The firm's ROE is %. (Round to two decimal places.) What is the advantage to using the DuPont system to calculate ROE over the direct calculation of earnings available for common stockholders divided by common stock equity? (Select from the drop-down menus.) Observe the modified DuPont formula (see) and notice that each component can be compared with industry standards to assess the firm's performance. Therefore, the advantage of using the Dupont system is that ROE is broken into three distinct components. Starting at the right we see how has increased assets over the owners' original equity. Next, moving to the left, we see how efficiently the firm used its sales. to…
The Saw Mill has a return on assets of 6.1 percent, a total asset turnover rate of 1.8, and a debt-equity ratio of 0.6. What is the return on equity? Group of answer choices 9.76 percent 15.86 percent 19.03 percent 4.26 percent 12.28 percent
WACC-Book weights and market weights Webster Company has compiled the information shown in the following table: a. Calculate the weighted average cost of capital using book value weights. b. Calculate the weighted average cost of capital using market value weights. c. Compare the answers obtained in parts a and b. Explain the differences. a. The firm's weighted average cost of capital using book value weights is %. (Round to two decimal places.) i Data Table (Click on the icon located on the top-right corner of copy its contents into a spreadsheet.) data table bel order to Source of capital Book value Market value After-tax cost Long-term debt $4,000,000 $3,840,000 8% Preferred stock 40,000 65,000 13% Common stock equity 1,060,000 4,484,000 15% Totals $5,100,000 $8,389,000 Print Done
(b) Use Allscripts Healthcare and McKesson as comparables, along with the price to NOA ratios from part a, and then estimate for Cerner its company intrinsic value, its equity intrinsic value, and its equity intrinsic value per share. (Round the intrinsic value and equity intrinsic value to the nearest million and the value per share to the nearest cent.)Average of the two rounded ratios in (a) aboveAnswer (Round to two decimal places.) Using the rounded average calculation above, calculate the following:Intrinsic value
An insurance company’s projected loss ratio is 77.5 percent, and its expense ratio is 23.9 percent. It estimates that dividends to policyholders will add another 5 percent. What is the minimum yield on investments required in order to maintain a positive operating ratio?
3. Company WACC is 20%. Debt interest rate is 4% and D/ E ratio is 1,6. What is the cost of equity? HOW YOU CALCULATE THIS WITH EXCEL AND USING EXCEL FORMULAS?
K-Life financial services Limited uses risk-adjusted return on capital (RAROC) to measure performance on several aspects. In this regard, imagine that an investment officer wants to execute a transaction with the following characteristics: Probability of default (PD) = 30 basis points Loss given default (LGD) = 55% Exposure at default (EAD) = K 1.45 million Expected loss (EL) = K 2,750 This is a loan to a company in the Agro industrial. The firm’s economic capital (EC) model is based on the 99% confidence level, with an average standard deviation of 2.15%. The risk-free rate of return is 6%. Assume that the bank has set a RAROC hurdle rate of 15% and this transaction has a net profit of K10, 500. REQUIRED: Compute the K-life’s risk-adjusted rate of return on this transaction. Now assume that K-life could also have made a loan for the same amount to a firm in the service industry, and that the standard deviation for economic capital purposes in this case is 1.29%. Compute the bank’s…

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