erry Allen graduated from the University of Arizona with a degree in Finance in 2011 and took a job with an investment banking firm as a financial analyst. One of his first assignment is to investigate the investor-expected rate of return for technology firms: Apple (APPL), Dell (DELL) and Hewlett Packard (HPQ). Jerry’s supervisor suggested that he make his estimates using CAPM where the risk-free rate is 4.5%. the expected return on the market is 10.5% 2. Calculate the expected return using CAPM equation using a beta coefficient of 2.00 3. Solve the expected return for Apple using the beta from Yahoo and the beta from MSN and a risk-free rate of 4.5% and a market risk premium of 6% yield

erry Allen graduated from the University of Arizona with a degree in Finance in 2011 and took a job with an investment banking firm as a financial analyst. One of his first assignment is to investigate the investor-expected rate of return for technology firms: Apple (APPL), Dell (DELL) and Hewlett Packard (HPQ). Jerry’s supervisor suggested that he make his estimates using CAPM where the risk-free rate is 4.5%. the expected return on the market is 10.5% 2. Calculate the expected return using CAPM equation using a beta coefficient of 2.00 3. Solve the expected return for Apple using the beta from Yahoo and the beta from MSN and a risk-free rate of 4.5% and a market risk premium of 6% yield

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 28P

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Jerry Allen graduated from the University of Arizona with a degree in Finance in 2011 and took a job with an investment banking firm as a financial analyst. One of his first assignment is to investigate the investor-expected rate of return for technology firms: Apple (APPL), Dell (DELL) and Hewlett Packard (HPQ). Jerry’s supervisor suggested that he make his estimates using CAPM where the risk-free rate is 4.5%. the expected return on the market is 10.5% 1. Calculate the risk premium of the market show all the working formula where applicable
Jerry Allen graduated from the University of Arizona with a degree in Finance in 2011 and took a job with an investment banking firm as a financial analyst. One of his first assignment is to investigate the investor-expected rate of return for technology firms: Apple (APPL), Dell (DELL) and Hewlett Packard (HPQ). Jerry’s supervisor suggested that he make his estimates using CAPM where the risk-free rate is 4.5%. the expected return on the market is 10.5% 1. Calculate the risk premium of the market show all the working formula where applicable/ 2. Calculate the expected return using CAPM equation using a beta coefficient of 2.00 3. Solve the expected return for Apple using the beta from Yahoo and the beta from MSN and a risk-free rate of 4.5% and a market risk premium of 6% yield 4. Calculate the expected return with the CAPM equation using each of the following beta estimates for the three technology firms. Present the information in a tabulated format
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John Banks works for a firm that is expanding into a completely new line of business. He has been asked to determine an appropriate WACC for an average-risk project in the expansion division. Richard finds two publicly traded stand-alone firms that produce the same products as his new division. The average of the two firms' betas is 1.25. Further, he determines that the expected return on the market portfolio is 13.00% and the risk-free rate of return is 4.00%. Banks's firm finances 50% of its projects with equity and 50% with debt, and has a before-tax cost of debt of 9% and a corporate tax rate of 30%. What is the WACC for the new line of business?