Critical Evaluati on of CAPM Model |2 1. Introduction: Over the years‚ the financial management theorists and practitioners have developed different financial management models and concepts that in turn have been facilitating the task of investment‚ financial and assets utilization decisions (Brigham & Houston‚ 1999). One such important and most widely tool that has been widely used for the portfolio management and risk assessment is Capital Asset Pricing Model (CAPM hereinafter). The model that
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Vidyasagar University Journal of Commerce Vol.11‚ March 2006 EVA BASED PERFORMANCE MEASUREMENT: A CASE STUDY OF DABUR INDIA LIMITED Debdas Rakshit* ABSTRACT Traditional measures of corporate performance are many in number. Measures using common bases are Net Profit Margin‚ Operating Profit Margin‚ Return on Investment (ROI)‚ Return on Net Worth (RONW)‚ Earning Per Share (EPS) etc. Among these‚ again ROI is recognized as the most popular yardstick of overall performance. But it is often argued that
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Explain. MGMT 310 - Financial Management 4 Systematic risk vs. Unsystematic risk (p 447) - Solution • The amount of systematic risk is measured by the of an asset. • E(RI) = .25(.02) + .50(.21) + .25(.06) = .1250‚ or 12.50% • Using the CAPM to find the of Stock I‚ we find: .1250 = .04 + .07I I = 1.21 • The total risk of the asset is measured by its standard deviation. • I2 = .25(.02 – .1250)2 + .50(.21 – .1250)2 + .25(.06 – .1250)2 = .00743 • I = (.00743)1/2 = .0862‚ or
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Journal of Money‚ Credit and Banking‚ 9(1)‚ 70-85. Retrieved May 28‚ 2010 from EBSCOHost database Chen‚ Sh. & Dodd‚ J. (2002). Market efficiency‚ CAPM‚ and value-relevance of earnings and EVA: A reply to the comment by professor Paulo 507-512. Retrieved May 28‚ 2010 from EBSCOhost database Chew‚ D Fama‚ E. & French‚ K. (1996). The CAPM is wanted‚ dead or alive. The Journal of Finance‚ 51(5)‚ P Hatfield‚ G. (2002). R&D in an EVA world. Research Technology Management‚ 45(1)‚ 41-47.
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Marriott cost of capital Objective: 1) Calculate the divisional and the company cost of capital and explain the calculation. 2) Evaluate Marriott’s use of company cost-of-capital rate for the individual divisions. Cost of Capital for Lodging Division can be expressed as CC = We*Ce + Wd*Cd. For the weights of debt and equity (We and Wd)‚ the 1988 target-schedule rates of debt-to-assets and debt-to-equity were used as the only measures available in the case. Cost
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viewpoint of investors. Explain your reasoning a. A large fire severely damages three major U.S. cities. b. A substantial unexpected rise in the price of oil. c. A major lawsuit is filed against one large publicly traded corporation. 2. Use the CAPM to answer the following questions: a. Find the Expected Rate of Return on the Market Portfolio given that the Expected Rate of Return on Asset "i" is 10%‚ the Risk-Free Rate is 3%‚ and the Beta (b) for Asset "i" is 1.5. b. Find the Risk-Free Rate
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the basic concept and the specific sources of capital associated with the cost of capital. 2. Determine the cost of long-term debt and the cost of preferred stock. 3. Calculate the cost of common stock equity and convert it into the cost of retained earnings and the cost of new issues of common stock. 4. Calculate the weighted average cost of capital (WACC) and discuss alternative weighing schemes. 5. Describe the procedures used to determine break points and the weighted marginal
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Introduction This report is aim to analyse the benefits of risk-adjusted performance measurements to Zeus Asset Management. Zeus Asset Management is a fund management firm founded in 1968 in Atlanta by Tir Jerry Schneider. It serves both institutional and individual investors and with more than $1.7 million assets under management. The director of research‚ John Abbot‚ is considering adopting risk-adjusted approach in performance assessment. Zeus’s competitiveness analysis Zeus’s main competitors
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overseas growth‚ invest in value-creating project‚ achieve an optimal capital strategy and repurchase undervalued shares. To accomplish all these goals the company has asked Janet Mortensen‚ Vice President of finance for Midland energy resources‚ to calculate the weighted average cost of capital (WACC) for the company as a whole. Formula: WACC = rd (D/V) (1-t) + re (E/V) Where‚ rd = cost of debt; re= cost of equity; D = Market value of debt; E= Market value of equity; V= Market Value of the company
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the risk free rate. The beta for Dell is 1.36. -The yeild on 3-month Treasury bills is 0.01. -The cost of equity for Dell using the CAPM is 44.12%. 7.93% + 17.26% = 25.19%‚ Market Risk Premium. rs=rf + Beta (rm-rf); =.10 + 1.36 (.2509); = .4412; = 44.12% 3. The key competitors of Dell are Apple‚ IBM‚ and Hewlett-Packard. The beta for the following companies respectively is 1.58‚ 0.81‚ and 1.05 (reuters.com/finance). -The industry average
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