Use capital asset pricing model to identify undervalued

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(a) How would you use Capital Asset Pricing Model to identify undervalued and overvalued shares?

(b) Wealth Bank stock β is 0.80 and market return is 10%. If the government bond rate is 4% what is the expected return from an investment in Wealth Bank?

(c) What are the assumptions of weighted average cost of capital (WACC) calculations?

 

(d) Sigma Corporations capital structure is $60 million equity at a cost of 8% and $40 million debt at a cost of 6%. What is Sigma’s WACC?

Reference no: EM131012657

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