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The Capital Asset Pricing Model (CAPM)

Cash Flow Valuation Models

Estimate the cost of equity, WACC, and unlevered cost of equity. Using Target as the company you have been studying thus far. Find the beta for your company use: Estimate your company's cost of equity. Estimate your company's weighted-average cost of capital. Estimate your compan

Corporate Finance

I used IBM as my discussion company to explain beta so far I have come up with this... Beta is a measure of stock price fluctuation, as compared to an "average" company. If a particular stock has a high beta, that means the price fluctuates. Raising capital equity will be based on seeking out those ventures who thrive on roll

Weighted Average Cost Of Capital Questions

Question 1: The return on the stock market as a whole is currently 9.3%. Short dated Treasury bills are currently yielding 4.12%. The Beta factor applied to returns from companies involved in the sector in which the company is considering investment projects is 1.28. Applying the Capital Asset Pricing Model (CAPM) determin

Corporate Finance

How would the cost of capital change if the capital structure changed. If the company needs a split of 25% debt to 75% equity to have an optimal capital structure, would that be optimal. What would happen to the cost of capital if it is not optimal and the firm moves to optimal.

4 Questions

Please provide concise answers in 4 to 5 sentences for the following questions. 1) Would you ever use CAPM to make personal investment decisions? 2) What is your personal discount rate or rate of preferences? i.e. how much would you pay for a promise of $1000 to be received one year from now? Would you discount it by 10%,

Capital Markets

What options are available to organizations for raising capital? How do different capital markets affect the cost of capital to an organization?

After tax cost of debt, cost of equity

1. The Heuser Company's currently outstanding 10 percent coupon bonds have a yield to maturity of 12 percent. Heuser believes it could issue at par new bonds that would provide a similar yield to maturity. If its marginal tax rate is 35 percent, what is Heuser's after tax cost of debt? 2. The earnings, dividends, and stock pr

What if funds are blocked

A US manufacturing organization is planning to extend operations into Canada. I am needing help conducting a sensitivity analysis, based on the following "what if" scenarios: 1. What if funds are blocked? How does this affect the parent company? 2. From the perspective of the subsidiary, what if the subsidiary provided th

Financial Management - 40 Multiple Choice Questions in Finance

1. Which of the following could explain why a business might choose to organize as a corporation rather than as a sole proprietorship or a partnership? a. Corporations generally face fewer regulations. b. Corporations generally face lower taxes. c. Corporations generally find it easier to raise capital. d. Corporations enj


Summarize the different capital structure concepts addressed by answering the following questions: Why is WACC important to an organization? What impact does WACC have on capital budgeting and structure?

Answer to "expected return" question

Suppose the expected return on the market portfolio is 14.7 percent and the risk-free rate it 4.9 percent. Morrow Inc. stock has a beta of 1.3 Assume the capital-asset-pricing model holds. What is the expected return on Morrow's stock? If the risk-free decreases to 4 percent, what is the expected return on Morrow's sto

An Explanation of the Expected Rate of Return

A portfolio that combines the risk-free asset and the market portfolio has an expected return of 22 percent and a standard deviation of 5 percent. The risk-free rate is 4.9 percent, and the expected return on the market portfolio is 19 percent. Assume the capital-asset-pricing model holds. Question: What expected rate of


Suppose you have invested $50,000 in the following four stocks: Security Amount Invested Beta Stock A $10,000 0.7 Stock B 15,000 1.2 Stock C 12,000 1.4 Stock D 13,000 1.9 The risk-free rate is 5 percent and the expected return on the market portfolio is 18 percent.


Week 6 - problem 4 Suppose you have invested $50,000 in the following four stocks: Security Amount Invested Beta Stock A $10,000 0.7 Stock B 15,000 1.2 Stock C 12,000 1.4 Stock D 13,000 1.9 The risk-free rate is 5 percent and the expec

Expected returns and standard deviations

1. Suppose the expected returns and standard deviations of stocks A and B are E (RA) = 0.15, E (RB) = 0.25, sA = 0.1, and sB = 0.2, respectively. Calculate the expected return and standard deviation of a portfolio that is composed of 40 percent A and 60 percent B when the correlation between the returns on A and B is 0.5. Cal

Return, Risk, and Security Market Line & Portfolio Management

Can you please assist me with these questions - 1. Stock Betas - A stock has an expected return of 12.5%, the risk-free rate is 5%, and the market risk premium is 6%. What must the beta of this stock be? 8. Expected Returns - A stock has a beta of .7, the expected return on the market is 15%, and the risk-free rate is 6.5


"The study level of Other is Master." Let's suppose I am a Martian who has just landed outside your dwelling, one morning. I notice a newspaper in the yard open to the financial section and there is a reference to stocks and betas. How would attempt to explain to one very friendly Martian (who will do you no harm), what bet

Louisiana Enterprises- all-equity firm new capital investment

Louisiana Enterprises, an all-equity firm, is considering a new capital investment. Analysis has indicated that the proposed investment has a beta of 0.5 and will generate an expected return of 7 percent. The firm currently has a required return of 10.75 percent and a beta of 1.25. The investment, if undertaken, will double the

Cost of Capital II

Hello BrainMass OTA, Q 1. The earnings, dividends, and stock price of Carpetto Technologies Inc. are expected to grow at 7 percent per year into the future. Carpetto's common stock sells for $23 per share, its last dividend was $2.00, and the company will pay a dividend of $2.14 at the end of the current year. a. Using t

Equilibrium stock price using CAPM and Dividend discount model

You are given the following data: (1) The risk-free rate is 5 percent. (2) The required return on the market is 8 percent. (3) The expected growth rate for the firm is 4 percent. (4) The last dividend paid was $0.80 per share. (5) Beta is 1.3. Now assume the following changes occur: (1) The inflation premium drops

Discount Rates

A) What is the price of a 10-year US Treasury STRIP that makes a single payment of $10,000 if the discount rate is 5% effective annual yield? b) Alpha Company. has just issued a traditional 3 year 6% coupon bond that makes coupon payments twice a year at a price of 97. What is the yield to maturity on the bond? c) Beta

Company facing challenges with respect to merger / acquisiton

I need help in assessing Proctor & Gamble in respect to the Wella merger. Also need to describe a series of optimal financial strategies for P&G if any financil theories relate to this (i.e Capital Structure M&M; Portfolio Theory; CAPM etc) show relation...This should also show an evaluation of the company's financial performanc

4 Problems to do with Finance CAPM / Beta / Return and standard deviations

(See attached file for full problem description) --- 1.1 Solve Problems 10.3 on page 289, RWJ Chapter 10 Mr Henry can invest in Highbull stock and Slowbear stock. His projection of the returns on these two stocks is as follows: State of Probability of Return on Return on Economy State Occurring Highbull Stock