What is its estimated cost of equity capital based on capm

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Question: 1. In 2015, a firm has receipts of $8 million and expenses (excluding depreciation) of $4 million. Its depreciation for 2015 amounts to $2 million. If the effective income tax rate is 40%, what is this firm's net operating income after taxes (NOPAT)?

2. The Caterpillar Company has a beta (a measure of common stock volatility) of 1.28. What is its estimated cost of equity capital based on the CAPM when the risk-free interest rate is 2.5%?

3. Refer to the associated graph. Identify when the WACC approach to project acceptability agrees with the CAPM approach. When do recommendations of the two approaches differ? Explain why

Reference no: EM131507182

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