1. Below are the most recent financial statements information for M. Inc. (in million $). Dec.31.202 Dec.31.2021 0 Financial assets 130,334 136,527 Operating assets 203,445 164,784 Financial Liabilities 67,775 70,998 Operating liabilities 124,016 112,009 Common stockholders' equity 141,988 118,304 Total shares outstanding 7,519 7,571 Dec.31.202 Dec.31.2021 0 Financial Income after tax 2,790 2,108 Financial Expense after tax 1,853 2,047 Net Financial Income 937 61 The stock price of M. was around $340 at the end of fiscal year 2021. The firm beta is 0.94. Around December 31, 2021, the 10-year US government bond yield is about 1.5%. The market risk premium of US is estimated to be about 3.3%. 1) What is the cost of equity for M. at the end of fiscal year 2021? 2) What is the cost of operations for M. at the end of fiscal year 2021? 3) Compare the above two cost of capital and explain why they are different

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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1. Below are the most recent financial statements information for M. Inc. (in million $).
Dec.31.202
Dec.31.2021
0
Financial assets
130,334
136,527
Operating assets
203,445
164,784
Financial Liabilities
67,775
70,998
Operating liabilities
124,016
112,009
Common stockholders' equity
141,988
118,304
Total shares outstanding
7,519
7,571
Dec.31.202
Dec.31.2021
0
Financial Income after tax
2,790
2,108
Financial Expense after tax
1,853
2,047
Net Financial Income
937
61
The stock price of M. was around $340 at the end of fiscal year 2021. The firm beta is 0.94.
Around December 31, 2021, the 10-year US government bond yield is about 1.5%. The
market risk premium of US is estimated to be about 3.3%.
1) What is the cost of equity for M. at the end of fiscal year 2021?
2) What is the cost of operations for M. at the end of fiscal year 2021?
3) Compare the above two cost of capital and explain why they are different
Transcribed Image Text:1. Below are the most recent financial statements information for M. Inc. (in million $). Dec.31.202 Dec.31.2021 0 Financial assets 130,334 136,527 Operating assets 203,445 164,784 Financial Liabilities 67,775 70,998 Operating liabilities 124,016 112,009 Common stockholders' equity 141,988 118,304 Total shares outstanding 7,519 7,571 Dec.31.202 Dec.31.2021 0 Financial Income after tax 2,790 2,108 Financial Expense after tax 1,853 2,047 Net Financial Income 937 61 The stock price of M. was around $340 at the end of fiscal year 2021. The firm beta is 0.94. Around December 31, 2021, the 10-year US government bond yield is about 1.5%. The market risk premium of US is estimated to be about 3.3%. 1) What is the cost of equity for M. at the end of fiscal year 2021? 2) What is the cost of operations for M. at the end of fiscal year 2021? 3) Compare the above two cost of capital and explain why they are different
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