Using discounted cash flow approach to find cost of equity

Assignment Help Finance Basics
Reference no: EM1361130

The earnings, dividends, and stock price of Carpetto Tech Inc, are expected tp grow at 7 % per year in the future. Carpetto's common stock sells for $23 per share, its last dividend was $2.00, and the company will pay a dividend for $2.14 at the end of the current year.

A.Using the discounted cash flow approach, that is its cost of equity?

b. If the firm's beta is 1.6, the risk free rate is 9 %, and the expected return on the market is 13%, what will be the firm's cost of equity using the CAPM approach?

c. If the firm's bond's earn a return a return of 12%, what will rs be suing the bond-yield-plus-risk-premium approach?

d. On the basis of the results of parts a through c, what would you estimate Carpetto's cost of equity to be?

 

Reference no: EM1361130

Questions Cloud

Explanation of childhood obesity : Imagine that by completing an assessment of your community, you identify that 20% of the population is obese (including children). Why do you think there has been a rise in obesity?
Explain horizontal integration and related diversification : Explain Horizontal Integration and Related Diversification and Unrelated Diversification
Concept analysis in relation to theory development : Concept analysis - Explain what are the advantages of concept analysis in relation to theory development?
What speed does the boxcar have after 10 seconds : what speed does boxcar have after 10 seconds.What is the object's displacement Dx.
Using discounted cash flow approach to find cost of equity : The earnings, dividends, and stock price of Carpetto Tech Corporation, are expected tp grow at 7 percent every year in the future. Carpetto's common stock sells for $23 each share,
Discuss equations for and graph the variable cost : Discuss equations for and graph the variable cost, average variable cost, and marginal cost of cleaning classrooms.
Ilustrate what is the marginal product of capital and labor : Ilustrate what is the marginal product of capital and labor. Does the answer depend on how much labor and capital are used.
Aon project network : Complete the forward and backward pass, compute activity slack, and identify the critical path. How many days will the project take?
Explain what three suggestions would you offer her : Explain What three suggestions would you offer her and Reflect on your experiences with supervisors you've had who model effective leadership/motivation.

Reviews

Write a Review

Finance Basics Questions & Answers

  Time value of money problems

Time Value of Money Problems ,  Joe, a Carlson School graduate you recently hired, needs $55,000 in 4 years to buy the car of his dreams. If his investments earn 6% interest per year, how much must he invest today?

  Find the initial outlay for capital budgeting

A new machine can be purchased for $1,500,000. It will cost $45,000 to ship & $55,000 to fine tune the machine. The new machine will replace older version.

  Compute the value of stock

Brushy Mountain Mining Corporation's ore reserves are being depleted, so its sales are falling. Also, its pit is getting deeper each year, so its costs are increasing.

  Compute the weights for disney''s equity

Compute the weights for Disney's equity and debt based on the market value of equity and Disney's market value of debt, computed in step 5

  Predict future earnings performance

Discuss how can the measures of interest rate risk be used to predict future earnings performance.

  Compare client driven goals and provider-given goals

Write an essay and include the following questions in the paper. I would appreciate your knowledge about the questions and any personal experiences as well.

  Determine the stocks current price

A corporation currently pays a dividend of $2 per share, D0=$2. It is estimated that the corporation's dividend will grow at a rate of 20 percent per year for the next 2 years,

  Multiple choice question on basic finance

Norville Creations wants to get an after-tax profit of $45,000 for the year ended December 31, Year 1. The corporation sells its product for $35 per unit and has a contribution margin ratio of 15 percent.

  Prepare journal entry to record impairment of the asset

Given below is information related to copyrights owned by Yaeger Company at December 31, 2004:

  Answer the questions on derivative instruments

Answer the Questions on Derivative instruments and Derivative transactions are designed to increase risk and are used almost exclusively

  Systemic and unsystemic events

Classify the following events as mostly systematic or mostly unsystematic and tell us why. Is the distinction clear in each case?

  Time value of money concepts of life insurance policy

You're the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds.

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