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...

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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
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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%
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