CAPM, Cost of Capital, Betas
Not what you're looking for?
A risk analyst gives alpha systems a CAPM equity beta of 1.38. The risk free rate is 5.5%.
1. prepare a table with the cost of capital that you would calculate for the equity with the following estimates of the market risk premium:
a. 4.5%
b. 6.0%
c. 7.5%
d. 9.0%
2. Other analysts disagree on the beta, with estimates ranging from 1.25 to 1.55. Prepare a table that gives the cost of the capital for each estimate of the market risk premium and beta estimates of 1.25 and 1.55.
3. In early July 1999, analysts were forecasting earnings of $2.10 per share for the fiscal year ending June 30th, 2000. They were also forecasting a P/E ratio for the firm of 67 in June 2000. The company pays no dividends. Calculate the current value of the stock in July 1999 for this P/E forecast using the lowest and the highest cost of the estimates from question 2.
Purchase this Solution
Solution Summary
Excel attachment answers three questions that include preparing two cost of capital tables and calculating the current value of stock used in forecasting based off estimates from those tables.
Purchase this Solution
Free BrainMass Quizzes
Academic Reading and Writing: Critical Thinking
Importance of Critical Thinking
Team Development Strategies
This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.
Operations Management
This quiz tests a student's knowledge about Operations Management
Managing the Older Worker
This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce
Learning Lean
This quiz will help you understand the basic concepts of Lean.