Answer: a Diff: E [iii]. Which of the following statements is most correct? a. If a company’s tax rate increases but the yield to maturity of its noncallable bonds remains the same‚ the company’s marginal cost of debt capital used to calculate its weighted average cost of capital will fall. b. All else equal‚ an increase in a company’s stock price will increase the marginal cost of retained earnings‚ ks. c. All else equal‚ an increase in a company’s stock price will increase
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the group. If you submit a CD‚ write the group members’ names on the CD. PART A 1. The file “data” contains returns data on the market‚ risk free asset and a number of stocks. Choose five stocks from the file‚ list the names of the stocks and calculate their average returns and standard deviations.
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What is the WACC and why is it important to estimate a firm’s cost of capital? Do you agree with Joanna Cohen’s WACC calculation? Why or why not? WACC is the weighted average cost of capital. It can be calculated as: WACC = (Weight of funding source 1) x (Cost of funding source 1) + … + (Weight of funding source n) x (Cost of funding source n) Usually this will be simply: WACC = (Percentage of debt) x (Cost of debt) + (Percentage of equity) x (Cost of equity) It is important to estimate
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effects? a. P/E effect. P/E effect can be considered as efficient market anomalies that can’t be explained by CAPM. If two firms have the same expected earnings‚ the riskier stock will sell at a lower price and lower P/E ratio. Thus the low P/E stock will have higher expected returns. P/E acts as a useful additional descriptor of risk‚ and will be associated with abnormal returns if the CAPM is used to establish benchmark performance. CAMP does not account for all risks. b. Book-to-market effect
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the most recent beta estimate should be used because it is more relevant to the current cost of equity. Furthermore‚ the market values‚ not the book values‚ of debt and equity‚ should be used to correctly weight the capital components. 2) Using CAPM: a. The market free rate is 5.74%‚ which is the longest US Treasury Yield forecast. We used this rate because WACC is used for long-term projects and therefore‚ the longest treasury rate should also be used. b. The market risk premium is the geometric
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Different perspectives on risk and return Semester 1‚ 2013 FINC5001 Capital Markets & Corporate Finance BUSINESS SCHOOL THE UNIVERSITY OF SYDNEY 1. Executive Summary This paper aims to examine Mean-Variance Analysis and Capital Asset Pricing Model in respect to expected return and risk for two stock portfolio. We have chosen to examine Woolworths Limited (Woolworths Limited 2013)‚ and Cochlear Limited (Cochlear 2013). We first discuss about Mean-Variance Analysis and
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this problem we need to first calculate the required rate of return‚ which is Rs=Rf+B(Rrm-Rrf)‚ so 7.5+(11.5-7.5)*1.2=12.3... So‚ D0 would be 2‚ D1 would be 2.4‚ D2 would be 2.88‚ and D3 would be 3.08. We then have to calculate the PV for the dividends‚ which is 4.42. We have to calculate P2‚ which came out to 46.10. After adding up the PV values we get the stock’s price which is 50.50‚ or at least that’s what I got... (9-1) After-Tax Cost of Debt Calculate the after-tax cost of debt under
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Securities Analysis Index 1. The background of the company 2. AT&T’s Life Cycle Analysis 3. Analysis of Return on Equity 4. The company’s projected future growth rate of earnings 5. Analysis of its required rate of return using the CAPM measurement 6. The company’s intrinsic value using the discount valuation techniques 7. Conclusions 8. References 1. AT&T Background AT&T Inc. is an American multinational corporation that provides telecommunications services
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Abstract In this week’s individual project paper‚ a set of financial data will be analyzed (via provided XYZ downloaded information‚ Bloomberg.com‚ IP provided ‘assumptions’‚ and Web resources) in order to calculate expected returns and theoretical stock prices for XYZ Corporation. The CAPM (capital asset pricing model) and CGM (constant growth rate) will be used to arrive at the company stock price. Assignment: The risk-free rate of interest (krf) value is gathered from the Bloomberg.com website
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CHAPTER 9 THE COST OF CAPITAL (Difficulty: E = Easy‚ M = Medium‚ and T = Tough) Multiple Choice: Problems Easy: Cost of common stock Answer: d Diff: E [i]. Bouchard Company ’s stock sells for $20 per share‚ its last dividend (D0) was $1.00‚ and its growth rate is a constant 6 percent. What is its cost of common stock‚ rs? a. 5.0% b. 5.3% c. 11.0% d. 11.3% e. 11.6% Cost of common stock Answer: b Diff: E [ii]. Your company ’s stock
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