Evaluate abc cost of equity capital by using the market, Ask an Expert

Finance

1) ABC Enterprises is presently involved in its annual review of firm's cost of capital. Historically, firm has relied on CAPM to evaluate its cost of equity capital. Firm evaluates that its equity beta is= 1.25 and present yield on long-term U.S. Treasury bonds is= 4.28%. Firm's CFO is presently in the debate with one of firm's advisors at its investment bank about level of equity risk premium. Historically, ABC has used 7% to estimated equity risk premium. Though, investment banker argues that this premium has reduced in size dramatically in current years and is more probable to be in the 3% to 4% range.

a) Evaluate ABC cost of equity capital by using the market risk premium of 3.5%.

b) ABC capital structure is comprised o= 75% equity (based on present market prices) and 25% debt on which firm pays the yield of 5.125% before taxes at 25%.

c) What is firm's WACC under each of 2 suppositions about market risk premium?

View complete question

Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M915147

Have any Question?Write your Review or question?

Related Questions in Basic Finance

Question - laine needs to save up 4000 in 4 years if she

Question - laine needs to save up $4000 in 4 years. If she can set aside $1000 today, what rate of return does she need on her account? Elaine needs to save up $4000 in 4 years. If she can set aisde $50 per month what ra ...

1 you have been asked to develop a capitation rate for a

1. You have been asked to develop a capitation rate for a primary care group based on the following projections: Service Annual Frequency/1,000 Cost per Service Inpatient Visits 100 $7,000.00 Office Visits 3,000 $45.00 L ...

What is the number of shares that must be issued to the new

What is the number of shares that must be issued to the new investor in order for the investor to earn his target return?

When when is it appropriate to use the wac as the discount

When when is it appropriate to use the wac as the discount rate in capital budgeting

Assume that real risk-free rate r 100 the maturity risk

Assume that real risk-free rate (r*) = 1.00%; the maturity risk premium is found as MRP = 0.20%×(t - 1), where t = years to maturity; the default risk premium for AT&T bonds is found as DRP = 0.07%×(t - 1); the liquidity ...

Praful co ltd purchased the business on 142010 the company

Praful Co. Ltd., purchased the business on 1.4.2010. The company obtained the certificate of commencement on 31.7.2010. The following details are available as on 31.3.2011. a) Total sales up to 31.3.2011 Rs.15, 00,000. O ...

Suppose that a zero-coupon bond that matures in 1 year

Suppose that a zero-coupon bond that matures in 1 year costs $97 and that a zero-coupon bond that matures in 2 years costs $94. a) What must be the price of a 2-year coupon bond with a 5% coupon rate? (All face values ar ...

Question - find and read 2 articles about a recent merger

Question - Find and read 2 articles about a recent merger or acquisition. Write a paper of approximately 900 words for each article that answers the following questions: • What alternatives to the merger or acquisition m ...

Paul wants to accumulate 14500 for the down payment for a

Paul wants to accumulate $14,500 for the down payment for a new condo. He plans to start investing $2,500 annually beginning today. The investment account will pay 10 percent interest compounded annually. How long would ...

Your cousin is currentlynbsp10nbspyears old she will be

Your cousin is currently 10 years old. She will be going to college in 8 years. Your aunt and uncle would like to have $90,000 in a savings account to fund her education at that time. If the account promises to pay a fix ...

4,153,160 Questions Asked
13,132 Experts
2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Recent Questions

Ask Basic Finance Expert