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Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $2.40 and it expects dividends to grow at a constant rate g = 5.6%. The firm's current common stock price, P0, is $27.00. The current risk-free rate, rRF, = 4.8%; the market risk premium, RPM, = 6.1%, and the firm's stock has a current beta, b, = 1.3. Assume that the firm's cost of debt, rd, is 9.51%. The firm uses a 4.1% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Round your answers to 2 decimal places.
CAPM cost of equity: %
Bond yield plus risk premium: %
DCF cost of equity: %
Tool Makers, Inc. uses tool and die machines to produce equipment for other firms. The initial cost of one customized tool and die machine is $850,000. This machine costs $10,000 a year (after-tax) to operate. Each machine has a life of 3 years befor..
The beta of M Simon Inc., stock is 1.4, whereas the risk-free rate of return is 0.06. If the expected return on the market is 0.16, then what is the expected return on M Simon Inc?
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When would the coefficient of variation be preferred over the standard deviation for comparing two risky stocks in isolation? Fully explain your answer.
you are planning to purchase 100 shares of preferred stock and must choose between stock a and stock b. stock a pays an
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The current yield on a par value bond will exceed the bond's yield to maturity. A premium bond has a current yield that exceeds the bond's coupon rate. The yield to maturity on a premium bond exceeds the bond's coupon rate.
Over the past six years, a stock had annual returns of 14 percent, -3 percent, 8 percent, 21 percent, -16 percent, and 4 percent, respectively. What is the standard deviation of these returns? 15.08 percent 11.27 percent 14.40 percent 13.59 percent 1..
A Treasury bill has a bid yield of 2.13% and an ask yield of 2.09%. The bill matures in 209 days. Assume a face value of $1,000. What is the least you could pay to acquire a bill?
Payments of 200 due July 1, 2012 and 300 due July 1, 2014 have the same value on July 1, 2009 as a payment of 100 made on July 1, 2009 along with a payment made on July 1, 2013. Find the payment needed July 1, 2013 assuming effective annual interest ..
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On May 12, Jameel takes out a personal loan at an annual effective interest rate of 6%. The loan is to be repaid by payments on each of the next ten May 12s, the first six being for $822 and the final four being for $1516. Find the loan balance immed..
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