DCF method and SML method

Assignment Help Financial Management
Reference no: EM13948548

Epley Industries stock has a beta of 1.30. The company just paid a dividend of $.30, and the dividends are expected to grow at 4 percent. The expected return on the market is 13 percent, and Treasury bills are yielding 4.5 percent. The most recent stock price for the company is $62.

a. Calculate the cost of equity using the DCF method. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  DCF method     %

b. Calculate the cost of equity using the SML method. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  SML method    %

Reference no: EM13948548

Questions Cloud

What do investors require as a rate of return on this stock : Lake industries preferred stock has a par value of $100 and pays a dividend of $6.00 per share. it presently sells for $87 per share. What do investors require as a rate of return on this stock?
Requires an initial fixed asset investment : Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.64 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be w..
Result in initial aftertax cash savings : Scanlin, Inc., is considering a project that will result in initial aftertax cash savings of $1.71 million at the end of the first year, and these savings will grow at a rate of 1 percent per year indefinitely. What is the maximum initial cost the co..
What is the company pretax cost and aftertax cost of debt : Drogo, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 10 years to maturity that is quoted at 108 percent of face value. The issue makes semiannual payments and has an embedded cost of 9 percent annually. Wha..
DCF method and SML method : Epley Industries stock has a beta of 1.30. The company just paid a dividend of $.30, and the dividends are expected to grow at 4 percent. The expected return on the market is 13 percent, and Treasury bills are yielding 4.5 percent. The most recent st..
Fixed rate of interest for five years : Company X is based in the United Kingdom and would like to borrow $50 million at a fixed rate of interest for five years in U.S. funds. Because the company is not well known in the United States, this has proved to be impossible. Suggest an appropria..
A project that carries normal amount of risk : A project that carries a normal amount of risk and does not affect the risk exposure of the firm should be discounted back at the: Select one: a. coefficient of variation b. beta c. risk-free rate d. weighted average cost of capital
If market interest rates rises : If market interest rates rises?
Maintain growth rate-what must the dividend payout ratio be : Frasier Cabinets wants to maintain a growth rate of 5 percent without incurring any additional equity financing. The firm maintains a constant debt-equity ratio of .55, a total asset turnover ratio of 1.30, and a profit margin of 9 percent. What must..

Reviews

Write a Review

 

Financial Management Questions & Answers

  Spartan has cumulative voting and straight voting

The shareholders of the Spartan Corp. are electing six individuals to serve as directors on their board. There are 3 million shares outstanding. How many shares would you need to hold to be certain that you can elect at least one director assuming th..

  Net present value and internal rate of return

What effect does the terminal value have on Net Present Value and Internal Rate of Return? Would omitting or changing the terminal value change your decision?

  What would be the maintenance margin if a margin call

Assume you sold short 100 shares of common stock at $50 per share. The initial margin is 60%. What would be the maintenance margin if a margin call is made at a stock price of $60?

  Dollar gain and loss relative to the price of the bond

Three years ago, you invested in a zero coupon bond with a face value of $1,000 that had a YTM of 11.5% and 14 years left until maturity. Today, that bond has a YTM of 6.5%. Due to a financial emergency, you are forced to sell the bond. What is your ..

  Provision for loan loss ratio and noninterest expense ratio

The lower the interest expense ratio, the provision for loan loss ratio, the noninterest expense ratio, and the tax ratio the _______________ the _______________.

  Research to develop a new computer game

KADS, Inc., has spent $470,000 on research to develop a new computer game. The firm is planning to spend $270,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $57..

  Compromising or contradiction its brand ethic credentials

How should a Western Multinational Enterprise develop its business in Myanmar? To more precisely, How should a business corporation achieve its market objectives in Myanmar without compromising or contradiction its brand ethic credentials?

  Target capital structure for raising funds

Barton Industries expects that its target capital structure for raising funds in the future for its capital budget will consist of 40% debt, 5% preferred stock, and 55% common equity. Note that the firm's marginal tax rate is 40%. What is the firm's ..

  What will be the required return on your portfolio

You have been managing a $10 million portfolio that has a beta of 1.4 and a required rate of return of 14%. The current risk free rate is 5.5%. Assume that you will receive another 600,000. If you invest the money in a stock with a beta of 0.75, what..

  What is the mortgage loan balance of the loan

Calculate the monthly payment on a $300,000 loan with monthly payments, at 4% interest with 30 year amortization? What is the mortgage loan balance of the loan above at the end of year 5?

  How much money company should set aside to pay for machine

A Company is considering the purchase of a new machine that will last 8 years and cost $ 90,000 the first year, decreasing by $ 1,000 each year to $ 2,000 the eighth year. Determine how much money the company should set aside to pay for this machine:..

  What is the value-discount rate-payment is received

What is the value today of $3,200 per year, at a discount rate of 10 percent, if the first payment is received 6 years from today and the last payment is received 20 years from today?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd