What will be firm cost of common equity using capm approach

Assignment Help Financial Management
Reference no: EM131524036

The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 4% per year. Callahan's common stock currently sells for $24.00 per share; its last dividend was $2.50; and it will pay a $2.60 dividend at the end of the current year.

Using the DCF approach, what is its cost of common equity? Round your answer to two decimal places. Do not round your intermediate calculations.

%

If the firm's beta is 0.70, the risk-free rate is 7%, and the average return on the market is 13%, what will be the firm's cost of common equity using the CAPM approach? Round your answer to two decimal places.

%

If the firm's bonds earn a return of 10%, based on the bond-yield-plus-risk-premium approach, what will be rs? Use the midpoint of the risk premium range discussed in Section 10-5 in your calculations. Round your answer to two decimal places.

%

If you have equal confidence in the inputs used for the three approaches, what is your estimate of Callahan's cost of common equity? Round your answer to two decimal places. Do not round your intermediate calculations.

%

Reference no: EM131524036

Reviews

Write a Review

 

Financial Management Questions & Answers

  How would you go about preparing an estimate

Estimate of Loss. You are the practice manager for a four-physician office. You arrive on Monday morning to find the entire office suite flooded from overhead sprinklers that malfunctioned over the weekend. Water stands ankle-deep everywhere. How wou..

  What is profitability index of the project

Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelley Couts, who inherited the company. When it was founded over 70 years ago, the company originally repaired radios and other..

  Market share have to be next year for its profit

Fred Flintstone has just become the product manager for Yabba Dabba Doo, a consumer packaged product with a retail price of $2.00. Retail margins on the product are 33%, while wholesalers take a 12% margin. How many units will Yabba have to sell next..

  What is the days sales outstanding

Snider Industries sells on terms of 3/10, net 30. Total sales for the year are $1,183,000. Thirty percent of the customers pay on the 10th day and take discounts; the other 70% pay, on average, 88 days after their purchases. What is the days sales ou..

  The market will go up as economy recovers

We know that the market should respond positively to good news and that good-news events such as the coming of the end of a recession can be predicted with at least some accuracy. Why, then, can we not predict that the market will go up as the econom..

  What is the equivalent ticket sales

28 years ago, ET: The Extra-Terrestrial generated $435,110,554 in ticket sales. What is the equivalent ticket sales figure in today's dollars (assume a 3% inflation factor compounded annually).

  Draw payoff diagrams for each of the given portfolios

Draw payoff diagrams for each of the following portfolios (X = strike price):- Buy a call, with X = $50, and sell a call, with X = $60.

  What is the amount of the line of credit reported

Upton Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, ships them to its chain of retail stores, and has a staff to advise customers and help them set up their new computers. What is the amount of the..

  What are the drawbacks of this type of compensation plan

Some businesses try to overcome the agency problem bt using an incentive pay plan that is based on the growth of profits over a period. What are the drawbacks of this type of compensation plan?

  The equity investors rate of return on given investment

If, as a potential equity investor, you require an 8 percent after-tax rate of return on investments of this type, should you make this investment?

  What is the after-tax cash flow from leasing relative

Your company (Acme Iron) is considering leasing a new computer, you and your team need to perform analysis to support the decision making process. The lease lasts for 9 years. The lease calls for 10 payments of $10,000 per year with the first payment..

  What is the implicit interest in dollars-of the bonds life

Which of the following does not make cooperation more difficult? A zero coupon bond with a face value of $1,000 is issued with an initial price of $630.66. The bond matures in 20 years. What is the implicit interest, in dollars, for the first year of..

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