The equity cost.

Question

Want to see the full answer?

Answer 1

Question

Chapter 9, Problem 12PS

a.

Summary Introduction

To find: The equity cost.

b.

Summary Introduction

To determine: The difference between the industry beta and the company beta.

c.

Summary Introduction

To determine: The circumstances might to advise company UP to determine its cost of equity based on its own beta estimate.

d.

Summary Introduction

To determine: Whether the estimated beta influences the answer in part c.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

A company currently pays a dividend of $3.6 per share (D0 = $3.6). It is estimated that the company's dividend will grow at a rate of 19% per year for the next 2 years, and then at a constant rate of 6% thereafter. The company's stock has a beta of 1.4, the risk-free rate is 8.5%, and the market risk premium is 4.5%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer to the nearest cent.

I have attatched two related pictures to calculate a value of a compay using a DCF model. Please show how to get residual value like in the picture shown.

A company currently pays a dividend of $3.6 per share (D0 = $3.6). It is estimated that the company's dividend will grow at a rate of 19% per year for the next 2 years, and then at a constant rate of 6% thereafter. The company's stock has a beta of 1.4, the risk-free rate is 8.5%, and the market risk premium is 4.5%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 2

Question

Chapter 9, Problem 12PS

a.

Summary Introduction

To find: The equity cost.

b.

Summary Introduction

To determine: The difference between the industry beta and the company beta.

c.

Summary Introduction

To determine: The circumstances might to advise company UP to determine its cost of equity based on its own beta estimate.

d.

Summary Introduction

To determine: Whether the estimated beta influences the answer in part c.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 3

Question

Chapter 9, Problem 12PS

a.

Summary Introduction

To find: The equity cost.

b.

Summary Introduction

To determine: The difference between the industry beta and the company beta.

c.

Summary Introduction

To determine: The circumstances might to advise company UP to determine its cost of equity based on its own beta estimate.

d.

Summary Introduction

To determine: Whether the estimated beta influences the answer in part c.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 4

Question

Chapter 9, Problem 12PS

a.

Summary Introduction

To find: The equity cost.

b.

Summary Introduction

To determine: The difference between the industry beta and the company beta.

c.

Summary Introduction

To determine: The circumstances might to advise company UP to determine its cost of equity based on its own beta estimate.

d.

Summary Introduction

To determine: Whether the estimated beta influences the answer in part c.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 5

Chapter 9, Problem 12PS

a.

Summary Introduction

To find: The equity cost.

b.

Summary Introduction

To determine: The difference between the industry beta and the company beta.

c.

Summary Introduction

To determine: The circumstances might to advise company UP to determine its cost of equity based on its own beta estimate.

d.

Summary Introduction

To determine: Whether the estimated beta influences the answer in part c.

Answer 6

Chapter 9, Problem 12PS

a.

Summary Introduction

To find: The equity cost.

Answer 7

Chapter 9, Problem 12PS

a.

Summary Introduction

To find: The equity cost.

Answer 8

b.

Summary Introduction

To determine: The difference between the industry beta and the company beta.

Answer 9

b.

Summary Introduction

To determine: The difference between the industry beta and the company beta.

Answer 10

c.

Summary Introduction

To determine: The circumstances might to advise company UP to determine its cost of equity based on its own beta estimate.

Answer 11

c.

Summary Introduction

To determine: The circumstances might to advise company UP to determine its cost of equity based on its own beta estimate.

Answer 12

d.

Summary Introduction

To determine: Whether the estimated beta influences the answer in part c.

Answer 13

d.

Summary Introduction

To determine: Whether the estimated beta influences the answer in part c.

Answer 14

Expert Solution & Answer

Answer 15

Expert Solution & Answer

Answer 16

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 17

Ch. 9 - (VAR.P and STDEV.P) Choose two well-known stocks...Ch. 9 - (AVERAGE, VAR.P and STDEV.P) Now calculate the...Ch. 9 - (SLOPE) Download the Standard Poors index for the...Ch. 9 - Definitions Define the following terms: a. Cost of...Ch. 9 - True/false True or false? a. The company cost of...Ch. 9 - Company cost of capital Quark Productions (Give...Ch. 9 - Company cost of capital The total market value of...Ch. 9 - Company cost of capital You are given the...Ch. 9 - Company cost of capital Nero Violins has the...Ch. 9 - WACC A company is 40% financed by risk-free debt....

The equity cost.

Solution Summary: The author explains that the cost of equity is 22.8% lower when it is on the basis of the firm's beta than the industry beta.

Concept explainers

Videos

To find: The equity cost.

To determine: The difference between the industry beta and the company beta.

To determine: The circumstances might to advise company UP to determine its cost of equity based on its own beta estimate.

To determine: Whether the estimated beta influences the answer in part c.

Want to see the full answer?

Chapter 9 Solutions