Cost of equity, Corporate Finance

Data:  RF = 4%      Market Risk Premium = 6%

GeKay Inc. is an all-equity firmwith an equity beta of 0.4 and yearly EBIT of $1,000,000 that is expected to continue "forever" (in perpetuity).All purchases and sales are in cash and there is no depreciation.

All earnings are paid out as dividends. GeKay has 100,000 shares of common stock outstanding, and pays taxes at the (marginal) rate of 36%.  Suppose we are in an M&M (Miller and Modigliani) world with taxes- but note that CAPM does apply.

1.            What is GeKay's cost of equity?

2.            Determine GeKay's stock price? 

 

 

Posted Date: 3/30/2013 2:57:56 AM | Location : United States







Related Discussions:- Cost of equity, Assignment Help, Ask Question on Cost of equity, Get Answer, Expert's Help, Cost of equity Discussions

Write discussion on Cost of equity
Your posts are moderated
Related Questions
Problem: (a) What are the main functions of the Bank of Mauritius? Give short comments on each function. (b) The Repo rate is an instrument of monetary policy for the Bank

If the cost of debt is the lowest choice among financing options, would increasing our percentage of debt reduce our cost of capital?#

This assignment is the third part of your course project. Using the two companies that are from the same industry, complete the following: Required: 1.Find their latest annual r

Question : Alpha Ltd. - an 100% equity company - is following a payout ratio of 40% during the last several years. The financial managers of the company are now considering wh

Suppose that Oxford Inc. is interested in the two new products, AME and CGK. Because of its capital budget constraint, it can only launch one new product line. Eric just graduated

how the knowledge of corporate finance helps thea multinational company to take decision about mergers and acquisition

WACC calculation

ABAN LOYD CHILES OFFSHORE LTD. Normal 0 false false false EN-US X-NONE X-NONE MicrosoftInternetExplorer4

A promissory note is an instrument in writing (not being a blank or a currency note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money onl

rf is 5% rM is 10% according to the SML and the CAPM, an asset with a beta of -2 has a required return of negative 5% (=5-2(10-5). can this be possible? Is this a negative asset w