Your team was asked to compute for the cost of equity for prospect companies using CAPM method and the manager provided you the following information:Cisco Co.SalesforceCo.3%Risk free rateBetaMarket returnCost of equity1.2512%14.50%11915%SAP SE Co.4%1.311.80%What is the market return for SAP SE Co? Answer:Adobe Co.5%1.48%

CAPM :— According to capital asset pricing model, cost of equity is calculated using the following…

Answered: Your team was asked to compute for the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The cost of equity using the CAPM approach The current risk-free rate of return (rRF) is 3.86%, while the market risk premium is 6.63%. the Monroe Company has a beta of 0.92. Using the Capital Asset Pricing Model (CAPM) approach, Monroe's cost of equity is
35. White Sails Inn hired you as a consultant to help estimate its cost of capital. You have What is the cost of equity for this company, White Sails Inn, from retained earnings? been provided with the following data: D, = $0.90; Po= $27.50; and g = 8.00%. a) 10.41% b) 10.96% C) 11.53% 12.11% 40. 36. Royal Hair Salon & Spa has a target debt to equity ratio of 0.55. Its cost of equity is 15.4%, and its pre-tax cost of debt is 7.8%. If the tax rate is 32% what is this company's WACC? a) 11.1% b) 11.5% c) 11.3% d) 11.8% 37. A firm has a cost of equity of 13%, a cost of preferred of 11%, and an after-tax cost of debt of 6%. Given this, which one of the following will increase the firm's weighted average cost of capital? a) Increasing the firm's tax rate. b) Increasing the firm's beta. c) Increasing the debt-equity ratio. d) Issuing new bonds at par. 38. Which of the following is true about risk and return? a) Riskier assets will, on average, earn lower returns. b) The reward for bearing…
tol Processing ng Help Save & Exit Submit Saved Practice Problems i Check my work Eaton Electronic Company's treasurer uses both the capital asset pricing model and the dividend valuation model to compute the cost of common equity (also referred to as the required rate of return for common equity). Assume: Rf = 7% Km 10% = 1.6 D1 = $ 0.70 $ 19 8% %3D PO = nt a. Compute Ki (required rate of return on common equity based on the capital asset pricing model). (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) ences Ki b. Compute Ke (required rate of return on common equity based on the dividend valuation model). (Do not round intermediate calculations, Input vour answer as a percent rounded to 2 decimal places.) < Prev 10 of 10 Next Mc Graw Hill 149 MacBook Air
As a business valuation expert, you have been allotted with the project to estimate the cost of equity for Alton Holdings. Alton Holdings operates in three different business sectors - Entertainment, Hotels, and Travel Services. The table beneath gives the information you collected both for the firm and for other comparable firms in each business sector. i. ii. iii. Business Sector Entertainment Hotel Travel Alton Holdings Sales Revenues €500 million €500 million €950 million Unlevered beta 0.95 1.15 Comparable Firms 1.45 Value/Sales Revenues 2.5 3.5 1.5 Estimate the (bottom-up) unlevered beta for Alton Holdings. Assume that Alton Holdings has no market-traded debt but €1.3 billion in book debt, an interest expense of €75 million per year, maturity 5 years and corporate bonds with the same credit rating as Alton Holdings yield 7.5%. Estimate the market value of debt of Alton Holdings. Assume next that Alton Holdings has 100 million shares trading at €12 per share. The tax rate is 40%.…
A. You are analyzing the price/book value ratios for seven firms in the hospitality industry, relative to returns on equity and required rates of return. The treasury bond rate is 6% and the market premium is 3%. The data on the companies are the following: Company P/BV ROE Beta A 0.50 9.0% 0.75 1.10 8.5% 0.80 1.20 7.0% 1.30 0.65 12.5% 0.70 1.50 16.0% 0.85 0.90 10.0% 1.40 1.00 18.5% 0.85 i. ii. B C D E F G Compute the average P/BV ratio, return on equity, and beta for the industry. Based upon these averages, is the hospitality industry under or overvalued according to book values assuming that the industry overall is in stable growth?
1 You've collected the following information from your favorite financial website. 52-Week Price Lo 10.43 Acevedo .36 Hi 77.40 55.81 130.93 50.42 35.00 Stock (Dividend) Required retum 33.42 Georgette, Incorporated 1.54 YBM 2.00 69.50 14.13 Manta Energy .98 20.74 Winter Sports.32 Dividend PE Ratio. Yield % 2,65 3.8 2.2 6.3 1.5 6 10 10 6 28 Close Price: Net Change 13.90 40.43 88.97 15.61 77 According to your research, the growth rate in dividends for Manta Energy for the previous 10 years has been negative 13 percent. If investors feel this growth rate will continue, what is the required return for the stock? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. -24 -.01 3.07 -.26 18
What is the cost of equity for a firm if the firm's equity has a beta of 1.4, the risk-free rate of return is 3%, the expected return on the market is 10%, and the return to the company's debt is 7%?
Accounting Use the following information: Stock A B Good state 12% 17% Bad state 0% -1% Assume there is 60% probability that the good state occurs and 40% chance the bad state occurs. What is the expected return of a portfolio that is 9% invested in stock A and 1-9% invested in B? (Please use 5 decimal places, this should be written in percentage return, so an answer of 23.143% should be written at .23143)
fast QUESTION 9 A company has a Return on Equity of 0.2, a Profit Margin of 0.12 and Total Asset Turnover of 0.48. Using this information calculate the Equity Multiplier?
True or False: It is free for a company to raise money through retained earnings, because retained earnings represent money that is left over after dividends are paid out to shareholders. False True The cost of equity using the CAPM approach The current risk-free rate of return (TRF) is 3.86% while the market risk premium is 6.63%. The Monroe Company has a beta of 0.92. Using the capital asset pricing model (CAPM) approach, Monroe's cost of equity is The cost of equity using the bond yield plus risk premium approach The Lincoln Company is closely held and, therefore, cannot generate reliable inputs with which to use the CAPM method for estimating a company's cost of internal equity. Lincoln's bonds yield 11.52%, and the firm's analysts estimate that the firm's risk premium on its stock over its bonds is 4.95%. Based on the bond-yield-plus-risk-premium approach, Lincoln's cost of internal equity is: 19.76% 16.47% 15.65% O 18.12%
Based on the following information you have collected, what is the sustainable growth rate (SGR) for Leo's Photography Studio? Profit Margin Debt/Equity Ratio Capital Intensity Ratio Net Income Dividends O A. O B. O C. O D. 12.42% 8.52% 15.15% 13.63% 7.1% 0.60 0.75 $48,000 $10,000
The following information was drawn from the accounting records of Jones Company. (Round the percentage to 1 decimal place Net sales Net income $316,279 Average total assets Average total liabilities Average total stockholders' equity 68,000 590,000 390,000 245,000 Based on this information the company's return on equity is es Multiple Choice The answer cannot be determined from the information provided. 27,8%. 21.5%. aw MacBook Air FB 888 F7 F6 F5 F4 F3 F2 F1 & % $ 8 @ 6. 4 2 W E Q G H D F S この

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