User Account

All Pages

Based on the bond-yield-plus-risk-premium approach

Assignment Help Financial Management
Reference no: EM132039965

COST OF COMMON EQUITY

The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 8% per year. Callahan's common stock currently sells for $29.50 per share; its last dividend was $2.50; and it will pay a $2.70 dividend at the end of the current year.

A. Using the DCF approach, what is its cost of common equity? Round your answer to two decimal places. Do not round your intermediate calculations.

%

B. If the firm's beta is 2.20, the risk-free rate is 6%, and the average return on the market is 12%, what will be the firm's cost of common equity using the CAPM approach? Round your answer to two decimal places.

%

C. If the firm's bonds earn a return of 9%, based on the bond-yield-plus-risk-premium approach, what will be rs? Use the midpoint of the risk premium range discussed in Section 10-5 in your calculations. Round your answer to two decimal places.

%

D. If you have equal confidence in the inputs used for the three approaches, what is your estimate of Callahan's cost of common equity? Round your answer to two decimal places. Do not round your intermediate calculations.

Reference no: EM132039965

Questions Cloud

Deciles for a continuous random variable : The percentiles, quartiles, and deciles for a continuous random variable can be approximated from a relative cumulative frequency
Why are you entering that particular industry : What is the selected industry you are entering? (Human Resource) Why are you entering that particular industry?
Describe and analyze the five elements of a contract : Describe and analyze the five elements of a contract that must exist for this agreement to be enforceable.
Deviation of the random variable x : Use the data of Exercise 8 to approximate the mean, variance, and stand. deviation of the random variable X, the level of airborne cadmium dust cadmium
Based on the bond-yield-plus-risk-premium approach : If the firm's bonds earn a return of 9%, based on the bond-yield-plus-risk-premium approach, what will be rs?
Three operators using three different machines : Articles manufactured by a company are produced by three operators using three different machines.
What are some ways she can cope with variation : How might these sources of variation impact Hazel's ability to match supply and demand? What are some ways she can cope with variation?
Summarize the major reform principles of given titles : How do unethical accounting practices affect internal and external stakeholders? Cite at least one regulation to present the legal perspective.
Determine the probability thata : For a typical telephone order, determine the probability thata. Neither computer system will be operationalb. both computer system will be operationalc

Reviews

Write a Review

Financial Management Questions & Answers

  Article of the labor law would you use to file this claim

An employee submitted a letter of resignation and notifying his employer that he is leaving the company after thirty days as required in his employment contract. If you were the employee how do initiate the law suit against the employer. Describe the..

  Compute its promised yield to maturity

Assume that you purchased an 8 percent, 20-year, $1,000 par, semiannual payment bond priced at $1,012.50 when it has 12 years remaining until maturity. Compute: a. Its promised yield to maturity b. Its yield to call if the bond is callable in three y..

  Controlling interest in the consolidated income statement

Compute the amount of income assigned to the controlling interest in the consolidated income statement for 20X4.

  What is proper cash flow to use as the initial investment

What is the proper cash flow to use as the initial investment for this project

  Pre-tax cost of? debt-compute the effective annual return

What is? Avicorp's pre-tax cost of? debt? Note: Compute the effective annual return.

  Calculate additional net income from the new sales

The Company is a well-known and reputable supplier of integrated circuits to manufacturers of telecommunications devices. The Company is currently debating whether to expand its sales to a new market. Calculate additional net income from the new sale..

  The loan and no interest was accrued to the loan

Bob contributed $7,000 of cash to BF Inc., a newly created S corporation for federal income tax purposes, and made a loan of $2,000 to BF Inc. During Year 1, BF Inc. generated ordinary income of $8,200 and tax exempt income of $2,000. No repayment wa..

  What is yield to call for these bonds

Using semiannual compounding, what is the yield to call for these bonds?

  What are your put options worth-what is your net profit

If, at expiration, the stock is selling for $39 per share, what are your put options worth? What is your net profit?

  What is beta of your portfolio

What is the beta of your portfolio? You have $114,000 to invest in a portfolio containing Stock X and Stock Y.

  Compunded annally

You have accumulated $591,147 for your retirement How much money can you withdraw for the next 30 years in equal annual end of the year cash flows.

  What is the stock current intrinsic stock price

A company is expected to have free cash flows of $4.4 million next year. The weighted average cost of capital is WACC = 9.2%, and the expected constant growth rate is g = 5.8%. The company has $2 million in short-term investments, $2 million in debt,..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd