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Estimate the equity cost of capital for XYZ Corp

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Reference no: EM132462806

Problem - You need to estimate the equity cost of capital for XYZ Corp.? Unfortunately, you only have the following data available regarding past? returns:

Year

Risk-free Return

Market Return

XYZ Return

2011

3%

6%

10%

2012

1%

-37%

-45%

You need to estimate the equity cost of capital for XYZ Corp. You have the following data available regarding past?returns:

a. What was? XYZ's average historical? return?

b. Compute the? market's and? XYZ's excess returns for each year. Estimate? XYZ's beta.

c. Estimate? XYZ's historical alpha.

d. Suppose the current? risk-free rate is 3 %?, and you expect the? market's return to be 8 %. Use the CAPM to estimate an expected return for XYZ? Corp.'s stock.

e. Would you base your estimate of? XYZ's equity cost of capital on your answer in part (a) or in part (d)?

Reference no: EM132462806

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