When estimating firm cost of capital

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Reference no: EM132022395

1. When estimating a firm's cost of capital, which of the following is NOT one of the four mistakes to avoid?

A. Base the cost of debt on the coupon rate on a firm's existing debt.

B. Never use the current book value capital structure to obtain the weights when estimating the WACC.

C. Always remember that capital components are funds that come from investor.

D. When estimating the market risk premium for the CAPM method, never use the historical average return on stocks in conjunction with the current return on T-bonds.

2. Stock x has the following returns. -8.67%, 22.00%, 27.00%, and 20.67% in the four out of the last five years. If the average return is 12.4666% then what was the return in the fifth year? Please show work.

Reference no: EM132022395

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