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Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $2.40 and it expects dividends to grow at a constant rate g = 5.2%. The firm's current common stock price, P0, is $29.00. The current risk-free rate, rRF, = 4.4%; the market risk premium, RPM, = 5.7%, and the firm's stock has a current beta, b, = 1. Assume that the firm's cost of debt, rd, is 8.09%. The firm uses a 3.7% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Round your answers to 2 decimal places.
What is the value of the retained earnings?
Compute the range of price of FB in one year from now that will make you want to exercise your option.
Operating income (EBIT) $600 million, Debt $0, Interest expense $0, Tax rate 35%, Cost of equity 7%, WACC 7%. The company has no growth opportunities (g = 0), so the company pays out all of its earnings as dividends. If the company makes this change,..
Using graphs of the loanable funds markets in the two countries, demonstrate the correct flow of funds between Japan and the U.S as individuals move their funds from dollar denominated instruments to yen-denominated.
What is the amount of the aftertax salvage value of this asset?
Has cross-listing been beneficial for most listed companies? If yes, why doesn’t every company cross-list?
Is the company's "capital intensity" the same or different comparing to initial situation?
A company invests $1,000,000 at the beginning of the year. It adds another $250,000 at the end of the first quarter, withdraws $350,000 at the end of the second quarter, adds $145,000 at the end of the third quarter, and withdraws 450,000 of the rema..
In the traditional approach to capital structure, as the amount of debt increases in a firm's capital structure,
Asset A has an expected return of 10% and standard deviation of 20%. Asset B has an expected return of 16% and a standard deviation of 40%. The correlation between A and B is 0.35. Portfolio C is composed of 30% asset A and 70% asset B. Plot the atta..
Debby’s Dance Studios is considering the purchase of new sound equipment that will enhance the popularity of its aerobics dancing. The equipment will cost $15,800. What is the expected net present value? What is the expected value of the cash flow?
X Company is considering the purchase of a new processor that costs $200,000. Shipping and setup costs for the processor are estimated to be $15,000. X’s working capital requirement is expected to increase by $17,000 when the new processor begins ope..
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