Using the bond-yield-plus-risk-premium approach

Assignment Help Financial Management

Reference no: EM131863416

1. Sammy is the CEO of Company XYZ. He estimates that the risk premium should be 4.5%. Company XYZ's bonds yield 9.25%. Using the bond-yield-plus-risk-premium approach, what is the firm's cost of equity?

2. Assume Company XYZ can borrow at an interest rate of 6.5%, and its marginal federal-plus-state tax rate is 37%. What will be the after-tax cost of debt for the company?

3. Assume that in today's market, rrf = 4.25%, the market risk premium is RPM = 4%, and Company XYZ's beta is 1.02. Using the CAPM approach, what is Company XYZ's estimated cost of equity?

Reference no: EM131863416

Questions Cloud

What payoff do bondholders expect to receive in the event : a. What payoff do bondholders expect to receive in the event of a recession? (Do not round intermediate calculations)

What are considerations for working with elderly clients : What are some considerations for working with elderly clients who may have cognitive memory impairment? Include at least three communication methods

Standard deviation of historical return : Suppose that Stock L has a historical return of 12% and the standard deviation of its historical return is 6%. Stock M also has a historical return of 12%.

What are the goals of managerial accounting : What are the goals of managerial accounting? How does managerial accounting differ from financial accounting?

Using the bond-yield-plus-risk-premium approach : Company XYZ's bonds yield 9.25%. Using the bond-yield-plus-risk-premium approach, what is the firm's cost of equity?

Equity shares outstanding trading at a price : Nato Fitz Corporation currently has 2 million equity shares outstanding trading at a price of $5 per share with a beta of 1.5.

How does cognitive theorists conceptualize anxiety : How does cognitive theorists conceptualize anxiety? How does this particular conceptualization informs our understanding of human personality

Company debt-equity ratio : What would the weighted average cost of capital be if the company's debt-equity ratio were .65 and 1.80? (Do not round intermediate calculations.

Do you think this is a right decision : Your organization is embarking on a long -term project that will require additional human resources on a contract basis to complete the work of the project.

User Account

All Pages