User Account

All Pages

Solve the cost of equity using the capm

Assignment Help Cost Accounting
Reference no: EM132549631

You have been asked to calculate the cost of equity using the Capital Asset Pricing Model (CAPM). The CFO estimates the Beta as 0.90. Management wants to use the 30 year bond rate as the risk free rate, arguing that Investors should make long term investments; that rate is 3% today. The expected return on the stock market as a whole has been estimated to be 7%, 10% and 12% by various studies. The CFO asks that you use an expected return of 9% for the average stock. The market risk Premium (RPM) will be 6%. 9% minus 3% = 6%.

Question 1: Calculate the cost of equity (Rs) using the CAPM. The formula is Rs = rRF + (RPM ) x β. Rs is the required return on equity or the Cost of Equity, rRF is the risk free rate, RP M is the required stock market return in excess of the risk free rate, and β , (Beta) is the stocks relative risk. β is also described as the estimate of the amount of risk that an individual stock contributes to a well balance portfolio.

Reference no: EM132549631

Questions Cloud

How similar unspoken agreements between companies : Apple's transition from a computer hardware start-up by Steve Jobs to a global consumer electronics company that has consistently
Do you agree that we face an environmental crisis : Do you agree that we face an environmental crisis? If not, reread Gottlieb's description of "eight areas of acute concern" on p. 6-9 of This Sacred Earth.
How much will profit calculated using absorption coasting : By how much will the profit calculated using absorption coasting principles differ form the profit if marginal costing principles had been used?
What does the film grizzly man teach us about the nature : What does the film Grizzly Man teach us about the wildness of nature and how human beings ought to relate to it? What, if anything, was the mistake that led to.
Solve the cost of equity using the capm : Calculate the cost of equity (Rs) using the CAPM. The formula is Rs = rRF + (RPM ) x ß. Rs is the required return on equity or the Cost of Equity.
Research the activity of assigning resources to project : Research the activity of assigning resources to a project. Techniques used in the assignment of resources (human capital).
How can we harmonize the visions : What do you think William Cronon would say about Disney's attitude toward wilderness expressed in Bambi (and other Disney films)? What features of Disney films.
List two environmentally sustainable options : List two environmentally sustainable options to reduce costs for travel.
What is the budgeted profit for product b for december : The monthly budgeted production cost data, What is the budgeted profit for product B for December, using absorption costing?

Reviews

Write a Review

Cost Accounting Questions & Answers

  Break-even point in units for the company

What is the break-even point in units for the company and what is the dollar sales volume the firm must achieve to reach the break-even point?

  Demonstrate how operating income would

If sales volume were to decrease 10%, from 4,000 units per month, operating income would?Fixed expenses per month: $60,000

  Calculate amount of revenue that heartstrings will recognize

Heartstrings sold 25 of these packages for a total of $11,280 in cash. For the month of October, calculate the amount of revenue that Heartstrings will recognize.

  What entry should espinosa make

Guthrie Company sold its accounts receivable of $65,000. What entry should Guthrie make, given a service charge of 3% on the amount of receivables sold?

  Determine sarahs deductible transportation expense

Determine Sarah's deductible transportation expense, using the actual expense method.

  How many units did the company produce through the year

If production cost is $11 per unit under absorption costing each year, then how many units did the company produce through the year?

  Create displays using the sec 10-k for your company

You may benefit from the use of the UMUC Effective Writing Center. (See: http://www.umuc.edu/ewc/index.shtml)

  Calculate the sales-volume variance for each product

Calculate the sales-volume variance for each product and in total and calculate the sales-mix variance for each product and in total.

  On 31st december 2010 the south padre company had a

on 31st december 2010 the south padre company had a deferred tax liability balance of 8100 starting from an excess of

  Calculate dollars of ticket sales needed to earn a target

Calculate the dollars of ticket sales needed to earn a target profit of $6,000. Calculate dollars of ticket sales needed to earn a target profit of $12,000.

  What motivates an employer to use temporary employees

Discuss what motivates an employer to use temporary or contingent employees, and explain the ethical implications on the individual, society, and the profession of keeping an individual in that status.

  Direction of the misstatement

Direction of the misstatement - Indicate whether or not the trial balance will balance after the error

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