Chapter 11 In Class Excel Problems- Students

# Chapter 11 In Class Excel Problems- Students - Worksheet...

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Worksheet for Chapter 11 Questions The firm's target capital structure is 30% long-term debt, 10% preferred stock, and 60% common equity. QUESTION 1: What is the market interest rate on debt and what is the component cost of this debt for WACC pur Annual N 30 PV 1,153.72 PMT 60 FV 1000 QUESTION 2: Calculate the cost of equity at different estimates of Rm and beta. CAPM Approach 6% 11% 1.20 Calculate a data table that shows the effects of different expected market returns and betas. Given the normal standard errors for beta and uncertainties about the market return, the true values of these variables could easily be anywhere in the shaded, inner box, so the true cost of equity could easily be from 11% to 13%. The CAPM may appear to yield precise results, but in actuality the CAPM cost of equity could vary rather widely. Cost of Equity from Retained Earnings Beta Expected Return on the Market 0.0% 10.0% 10.5% 11.0% 11.5% 12.0% 1.00 1.10 1.20 1.30 1.40 QUESTION 3: Calculate the implied cost of equity for a non-constant growth stock using the D We use this model to provide practice with Excel modeling. The model is useful to give a sense of some of the issue estimation.

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