The firm uses the capm to estimate the cost of equity

Assignment Help Financial Management
Reference no: EM131585214

Daves Inc. recently hired you as a consultant to estimate the company's WACC. You have obtained the following information. (1) The firm's noncallable bonds mature in 20 years, have an 8.00% annual coupon, a par value of $1,000, and a market price of $1,225.00. (2) The company's tax rate is 40%. (3) The risk-free rate is 4.50%, the market risk premium is 5.50%, and the stock's beta is 1.20. (4) The target capital structure consists of 35% debt and the balance is common equity. The firm uses the CAPM to estimate the cost of equity, and it does not expect to issue any new common stock. What is its WACC? Do not round your intermediate calculations.

Please show excel formula and calculations

Reference no: EM131585214

Questions Cloud

Insurance coverage on the state exchanges : Craft a message announcing the change and offering employees the opportunity to meet with benefits representatives who will provide instructions.
What is the stock expected price five years from now : The required rate of return on the stock, rs, is 11.50%. What is the stock's expected price 5 years from now?
Hypothetical to support your position : Take a position for or against this statement: It is better to be approximately right than exactly wrong. Provide at least two reasons and one hypothetical to support your position
Complete a competitive profile matrix : Complete a Competitive Profile Matrix (CPM) for JP Morgan Chase, using at least 12 factors and two major competitors.
The firm uses the capm to estimate the cost of equity : The firm uses the CAPM to estimate the cost of equity, and it does not expect to issue any new common stock.
Compute the profit margin and return on assets : Selected comparative statement data for Queen Products Company are presented below. Compute the following ratios for 2017: Profit margin
Describe a real or hypothetical situation : Describe a real or hypothetical situation that requires someone to make a policy decision - Provide at least two reasons for your selection of the forecasting approach
What is company current stock price : The Francis Company is expected to pay a dividend of D1 = $1.25 per share at the end of the year, What is the company's current stock price?
Institutions contribute to establishment of national culture : How do institutions contribute to the establishment of a national culture? Explain in the context of a nation/s of your choice.

Reviews

Write a Review

Financial Management Questions & Answers

  Explain the options for receiving the money

Most states have turned to the lottery to raise money for education and other state financing needs. Determine the largest payout for the state in which you reside. Explain the options for receiving the money and select the method you would choose. P..

  What is the difference between standard deviation and beta

What's the difference between Standard Deviation and Beta? When talking about cost of capital, it is said that required return is the same than cost of capital. How's that (one is return and the other one is cost)? Why are taxes are applied to cost o..

  An overview of merger and acquisition

The project will provide an overview of Merger and Acquisition, valuation methods, insight on deal design, how to finance the M&A deal, considerations of capital structure such as debt and equity, in addition to terms of exchange.

  What are educational harms and social harms

What are educational harms? What are social harms? What are physical harms? What are psychological harms?

  What is your annual rate of return for the three year period

Three years ago, you bought a 12% bond that had 7 years to maturity and a yield to maturity of 12%. Today (after the sixth interest payment), you sold the bond when it is yielding 15%. What is your annual rate of return for the three year period? All..

  Calculate the minimum annual revenue

Suppose you have to decide whether selling an old machine or keeping it with a major overhaul: A) Selling the machine at time zero for $750,000 with zero book value and paying the tax of 40%. Calculate the minimum annual revenue that machine has to g..

  Valuation of constant growth stock

A stock is expected to pay a dividend of $2.00 the end of the year (that is, D1 = $2.00), and it should continue to grow at a constant rate of 8% a year. If its required return is 12%, what is the stock's expected price 1 years from today?

  What is the portfolio weight of each stock

A stock has a beta of 1.2, the expected return on the market is 11.4 percent, and the risk-free rate is 4.75 percent. What must the expected return on this stock be? What is the portfolio weight of each stock? What is the expected return of your port..

  Assume debt tax shields have net value of dollar of interest

Assume debt tax shields have a net value of $.40 per dollar of interest paid.

  Calculate earnings per share under each of the economic

Money, Inc., has no debt outstanding and a total market value of $200,000. Earnings before interest and taxes, EBIT, are projected to be $26,000 if economic conditions are normal. Calculate earnings per share (EPS) under each of the three economic sc..

  They have to save each year to reach their goal

Assume that your parents wanted to have $160,000 saved for college by your 18th birthday and they started saving on your first birthday. They saved the same amount each year on your birthday and earned 11.5% per year on their investments. How much wo..

  Compute the time varying beta for gm stock

Build a bivariate stochastic volatility model for the monthly log returns of General Motors stock. - Discuss the relationship between the two volatility processes and compute the time-varying beta for GM stock.

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