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Estimate the expected return on the stock for a short-term

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Reference no: EM132659143

In the problems following, use an equity risk premium of 5.5 percent if none is specified and a tax rate of 40 percent where no tax rate is provided.

1. In December 1995, Boise Cascade's stock had a beta of 0.95. The Treasury bill rate at the time was 5.8%, and the Treasury bond rate was 6.4%. The firm had debt outstanding of $1.7 billion and a market value of equity of $1.5 billion; the corporate marginal tax rate was 36%. (The historical risk premium for stocks over Treasury bills is 8.5% and the risk premium for stocks over Treasury bonds is 5.5%.)

Question a. Estimate the expected return on the stock for a short-term investor in the company.

Question b. Estimate the expected return on the stock for a long-term investor in the company.

Question c. Estimate the cost of equity for the company.

Reference no: EM132659143

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