US government withdraw the QE‚ the money supply will decrease‚ and the interest rate will rise‚ so the present value of bond will decline. 2. According to the CAPM‚ the expected return on a risky asset depends on three components. Describe each component‚ and explain its role in determining expected return. 1.According to the CAPM E(Ri)=Rf+βi[E(Rm)-Rf]
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debt and equity. $3‚494.5 / (1‚296.6 + 3‚494.5) = .73 = 73% Cost of Debt To find the cost of debt I subtracted the tax savings from the interest rate on debt. .045(1 - .38) = 2.8% Cost of Equity In order to find the cost of equity I used the CAPM approach. I used the yield on 20-year U.S. Treasuries as the risk-free rate‚ 5.74%. To estimate the market risk premium I used the arithmetic mean of 7.50%. I used Nike’s average beta‚ 0.80. .0574 + (.075 - .0574).8 = 7.1% WACC = KdWd(1 - T) +
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Australian School Of Business FINS1613: Business Finance Semester 1 2013 Tutorial Quiz 4 Name: STUDENT NAME Student number: STUDENT NUMBER Tutorial: TUTORIAL Instructions: 1. You must complete a Generalised Answer Sheet for this exam. (a) Complete the top portion of the sheet‚ providing your family name‚ initials‚ and student number. (b) If you are taking a quiz marked Extra‚ record the quiz number under Other Data. If you are taking a quiz preprinted with your student information‚ leave Other
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and the market value was $421.88 so she overstated debt by $19.42 (Exhibit 6). To find Nike’s cost of debt‚ we used three different methods: the Capital Asset Pricing Model (CAPM) (Exhibit 7)‚ the Dividend Discount Model (DDM) (Exhibit 5)‚ and the Earnings Capitalization Model (ECM) (Exhibit 8). We decided that the CAPM gave us the most accurate estimate of Nike’s cost of debt‚ and we used that in arriving at our before-tax cost of debt of 7.173% and our final after-tax cost of debt of 4.447% (Exhibit
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have branched out internationally‚ which has made communicating with international colleagues in a sense “compulsory”. Take the case of BHP Billiton‚ a large Australian co-owned mining company which operates mining projects in over 20 multinational locations. Its major mines are operating in countries such as Papua New Guinea‚ Angola‚ Chile‚ Colombia and Iraq (BHP Billiton Official Website 2008). Another example is Woolworths‚ one of Australia’s largest retailers‚ which is also involved in a very
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Calculating Beta for Compuware Corporation Financial websites tend to calculate beta on securities differently for publicly traded companies. Beta is merely an estimable measure of an assets’ risk in relation to the market. Because each website has their own underlying assumptions‚ they compute beta to have different values. In some cases‚ the variance in beta is as large as 0.50. To find out what underlying assumptions websites used to compute their betas‚ we performed a series of regression
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A s ae o . s h r d n. . Online Quiz Questions for Week 3 Topic: Term Structure Question: Assume that coupon interest is paid annually and all bonds have a face value of $100. Given the yields to maturity of the i) 1‐year 13% coupon bond‚ ii) 2‐year 11.5% coupon bond and iii) 3‐year 9% coupon bond are 10%‚ 9.5% and 9% respectively. Compute f(1‚2)‚ the interest rate of a 1‐year bond in 2 years’ time. Correct Answer: 7.88% Question: Suppose that all investors expect that interest r
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Value Growth 5.00% Initial outlay 1500 Additional Assumptions Risk free rate Proj. cost of debt Market Risk Premium Marginal Corporate Tax Rate Proj. Debt Beta Asset Beta for Kramer.com Expected Asset Return 5.00% 6.80% using CAPM 7.20% 40.00% 0.25 1.50 15.80% using CAPM Projections for Home Delivery Project 2002E 2003E 2004E 2005E 2006E Sales 1200 2400 3900 5600 7500 EBITDA 180 360 585 840 1125 Depreciation -200 -225 -250 -275 -300 EBIT -20 135 335 565 825 Tax Expenses 8 -54 -134 -226 -330 Net
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prices. 2. Using the scenarios in case Exhibit 9‚ what role does leverage play in affecting the return on equity (ROE) for CPK? What about the cost of capital? In assessing the effect of leverage on the cost of capital‚ you may assume that a firm’s CAPM beta can be modeled in the following manner: L = U[1 + (1 − T)D/E]‚ where U is the firm’s beta without leverage‚ T is the corporate
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current borrowing rate at the time of the analysis (1988). The costs of floating rate debt and fixed rate debt are determined for each division as well as for Marriott as a whole. The cost of equity is calculated using the Capital Asset Pricing Model (CAPM). This model takes risk-free rate‚ beta‚ and risk premium for each division as for Marriott as a whole. Betas for lodging and restaurants divisions can be calculated from comparable companies. However‚ information about comparable companies for contract
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