What will the required return on company cash flows be

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You founded a start-up company which has been successful, and is about to issue publicly-traded shares for the first time. You estimate that the correlation between the returns of your shares and the overall market is 0.4 for the foreseeable future; the standard deviation of your company's returns is fairly high, at 50% per year. The standard deviation of the market return is much lower, at 16% per year. The risk-free rate is 2% per year and the expected market risk premium is 6% per year.

Problem 1: If the CAPM holds, what will the beta on your company's shares be?

Problem 2: If the CAPM holds, what will the required return on your company's cash flows be?

Reference no: EM132790210

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