Did you overvalue or undervalue the firm

Assignment Help Financial Management
Reference no: EM132044357

The price of a stock is given by P=D/(r-g). Assume that r can be calculated by the CAPM formula r=r_f+?×MRP (i) Substitute the CAPM formula into the price formula to get a for P in terms of MRP. (ii) You use an MRP of 5% to first calculate P. If the true MRP is 10%, did you overvalue or undervalue the firm?

Reference no: EM132044357

Questions Cloud

What is the value of the company tax shield : WHAT IS THE VALUE OF THE COMPANY'S TAX SHIELD?
What is market risk premium : Asset W has an expected return of 10.0 percent and a beta of 1.15. If the risk-free rate is 3.0 percent, what is the market risk premium?
Why do firms set upper-lower limits on their cash balance : Why do firms set upper and lower limits on their cash balance? What factors affect these limits?
What is cost of common equity : What is its cost of common equity? What is the WACC?
Did you overvalue or undervalue the firm : You use an MRP of 5% to first calculate P. If the true MRP is 10%, did you overvalue or undervalue the firm?
What must the beta be for other stock in your portfolio : What must the beta be for the other stock in your portfolio?
What would you expect the annual interest to be on bp cds : If the annual interest rate on dollar CDs is 6%, what would you expect the annual interest to be on BP CDs?If the annual interest rate on dollar CDs is 6%, what
What is portfolio beta : What is the portfolio beta?
Find the exercise price on the option : The risk free annual interest rate is 6%. The no arbitrage price of the option is $82.75. Find the exercise price on the option.

Reviews

Write a Review

Financial Management Questions & Answers

  Recovery amount attributable to net working capital

Keyser Mining is considering a project that will require the purchase of $980,000 in new equipment. The equipment is in a seven-year MACRS class. The equipment can be scrapped at the end of the project for 5 percent of its original cost. What is the ..

  Current exchange rate

The current exchange rate is $1.50 per British pound. The exchange rate is expected to be $1.25 per British pound in six months.

  The effective monthly rate on this loan

You are taking out a car loan and will make payments of $398 each month (beginning one month from today), for a total of 60 monthly payments. If the interest ra

  What was the cash flow to creditors and stockholders

If no new debt was issued during the year, what was the cash flow to creditors? what was the cash flow to stockholders?

  Annual interest rate to advantage of cash discount offer

A supplier is offering your firm a cash discount of 2 percent if purchase is paid for within ten days; otherwise the bill is due at the end of sixty days. Would you recommend borrowing from a bank at 18 percent annual interest rate to take advantage ..

  The required rate of return for this stock

A stock will not pay a dividend for 3 years and then will pay a $5 dividend (D4) that will grow constantly at 5%. If the required rate of return for this stock is 10%, what is the value today?

  Considering purchasing new more efficient extractor

Parker Chemicals purchased a hexene extractor 10 years ago for $120,000. It is being depreciated on a straight-line basis over 15 years to an estimated salvage value of zero. It can be sold today for $10,000. Parker is considering purchasing a new mo..

  Calculate the cost of preference share capital

Calculate the cost of preference share capital. Calculate the cost of ordinary share capital.

  Interest payments are quarterly at libor plus

On April 15, KS Inc. Takes out a one year floating rate loan for $10 million. Interest payments are quarterly at LIBOR plus 200 basis points based on actual days in the period over 360. The payments are due July 15, January 15, and April 15. KS purch..

  Using net present value when evaluating projects

Green Landscaping, Inc. is using net present value (NPV) when evaluating projects. Green Landscaping’s cost of capital is 5.76 percent. What is the NPV of a project if the initial costs are $2,478,570 and the project life is estimated as 12 years? Th..

  Calculate the price-earnings ratio

You are considering an investment in Roxie's Bed & Breakfast Corp. During the last year, the firm's income statement listed an addition to retained earnings of $12.60 million and common stock dividends of $1.90 million. What is Roxie's Bed & Breakfas..

  Calculate effective rate of interest

Calculate the effective rate of interest for the following types of loans.

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!

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