The slope on this line is the estimate of beta 3 find

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Unformatted text preview: isk free ) - Beta can be estimated by plotting the return on the stock against the return on the market, and, fit a regression line to through the points. The slope on this line is the estimate of beta. 3. Find the debt and equity ratios - Debt and equity ratios should be calculated by using market value (rather than book value) of debt and equity. 4. Insert into the weighted average cost of capital formula Download free ebooks at 42 Corporate Finance Capital budgeting 6.1 Cost of capital with preferred stocks Some firm has issued preferred stocks. In this case the required return on the preferred stocks should be included in the company's cost of capital. (37) Company cost of capital common equity preferred equity debt rdebt  rcommon  rpreferred firm value firm value firm value Where firm value equals the sum of the market value of debt, common, and preferred stocks. The cost of preferred stocks can be calculated by realising that a preferred stock promises to pay a fixed dividend forever. Hence, the market value of a preferred share is equal to the present value of a perpetuity paying the constant dividend: Price of preferred stocks DIV r your chance Please click the advert to change the world Here at Ericsson we have a deep rooted beli...
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This note was uploaded on 10/26/2012 for the course 19 19 taught by Professor - during the Spring '12 term at Sunway University College.

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