Study guide course part 3 - FIN 305 Homework 5(Last name J – P Due Thursday March 31 st 1 You are estmatng The cosT of equiTy capiTal for a Frm and

Study guide course part 3 - FIN 305 Homework 5(Last name J...

• Notes
• 3
• 100% (1) 1 out of 1 people found this document helpful

This preview shows page 1 - 3 out of 3 pages.

FIN 305 Homework 5 (Last name J – P) Due Thursday March 31 st 1) You are estimating the cost of equity capital for a firm and rely on the following comparable firms: a) [ 1 point ] You know that the target D/E ratio for your firm is 0.80, and the tax rate is 30%. Further, the risk free rate is 4.00%, and the expected return on the market is 11.00%. What is the estimated cost of equity capital? [When aggregating the data, use the equally-weighted average of the peer firms]. A) 18.43% **?? B) 14.90% C) 21.00% b) [ 1 point ] You know that the target D/E ratio for your firm is 0.80, and the tax rate is 30%. Further, the risk free rate is 4.00%, and the expected return on the market is 11.00%. What is the estimated cost of equity capital? [When aggregating the data, use the median of the peer firms]. A) 17.16% B) 21.04% C) 14.90% 2)[1 point] You want to find the expected return of a stock. The stock had returns of 7 percent, -18 percent, -5 percent, 16 percent, and 30 percent over the past five years. During this time period, the stock had a correlation coefficient with its industry of 0.56 and a correlation coefficient with the marketof 0.87. The standard deviation of the industry was 27%, and the standard deviation of the market was
FIN 305 Homework 5 (Last name J – P) Due Thursday March 31 st 12%. The risk-free rate is 3.50% and the market risk premium is 6.50%. What is the expected return of the stock? A) 12.23%B) 5.12%C) 13.87%

You've reached the end of your free preview.

Want to read all 3 pages?

What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes