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
"The Code of Practice set out in the fourth schedule to the Employment Relations Act shall- (a) provide practical guidance for the promotion of good employment relations". (Se

Explain with proof that c >= max(S - X, 0), where c is the value of the European call option, S is the price of the underlying asset and X is the strike of the option. The follo

Problem 1: (a) Will a corporation be morally responsible for its actions? (b) Why do corporations engage in social responsibilities, and what are the potential drawbacks?

You are required to provide an essay or report of approx 500 words or less (excluding attachments and references),  accompanied by relevant calculations, in MS Word orPDF format ac

a)  Use excel of a financial calculator to estimate the IRR of the following business opportunity:  Initial cost of $100,000, expected pre-tax annual cash flows of $54,000 for the

The Brazilian economy in 2001 and 2002 had gone up and down. The Brazilian "real" (R$) had also been declining since 1999 (when it was floated). Investors wished to

Firm A has $10,000 in assets entirely financed with equity. Firm B also has $10,000 in assets, but these assets are financed by $5,000 in debt (with a 10 percent rate of interest)

Question 1: (a) What are the competing theories which have been put forward to explain the term structure of interest rates? Which theories do the evidence tend to support?

Question: There are two stocks, stock A and stock B. The price of stock A today is $70. The price of stock A next year will be $50 if the economy is in recession, $80 if the ec

Explain what caused "the long boom" in the U.S. and world economy from the early 1980s to its peak in 2006.  Make sure to mention, with a few key facts in each case, the role playe