Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Textbook Question
Chapter 12, Problem 2P
Suppose the market portfolio has an expected return of 10% and a volatility of 20%, while Microsoft's stock has a volatility of 30%.
- a. Given its higher volatility, should we expect Microsoft to have an equity cost of capital that is higher than 10%?
- b. What would have to be true for Microsoft's equity cost of capital to be equal to 10%?
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Suppose you estimate that stock A has a volatility of 32% and a beta of 1.42, whereas stock B has a volatility of 68% and a beta of 0.75.
(a) Which stock has more total risk?
(b) Which stock has more market risk?
(c) Suppose the risk-free rate is 2% and you estimatethe market’s expected return as 10%. Which firm has a higher cost of equity capital?
Suppose your company has an equity beta of 0,9 and the
current risk-free rate is 7,1%. if the expected market risk
premium is 10%, what is your cost of equity capital?
Suppose you estimate that stock A has a volatility of 32% and a beta of 1.42, whereasstock B has a volatility of 68% and a beta of 0.75.(a) Which stock has more total risk?(b) Which stock has more market risk?(c) Suppose the risk-free rate is 2% and you estimate the market’s expected return as10%. Which firm has a higher cost of equity capital
Chapter 12 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 12.1 - According to the CAPM, we can determine the cost...Ch. 12.1 - What inputs do we need to estimate a firms equity...Ch. 12.2 - How do you determine the weight of a stock in the...Ch. 12.2 - Prob. 2CCCh. 12.2 - Prob. 3CCCh. 12.3 - How can you estimate a stocks beta from historical...Ch. 12.3 - How do we define a stocks alpha, and what is its...Ch. 12.4 - Why does the yield to maturity of a firms debt...Ch. 12.4 - Prob. 2CCCh. 12.5 - What data can we use to estimate the beta of a...
Ch. 12.5 - Prob. 2CCCh. 12.6 - Why might projects within the same firm have...Ch. 12.6 - Under what conditions can we evaluate a project...Ch. 12.7 - Prob. 1CCCh. 12.7 - Prob. 2CCCh. 12 - Prob. 1PCh. 12 - Suppose the market portfolio has an expected...Ch. 12 - Prob. 3PCh. 12 - Suppose all possible investment opportunities in...Ch. 12 - Using the data in Problem 4, suppose you are...Ch. 12 - Prob. 6PCh. 12 - Prob. 7PCh. 12 - Suppose that in place of the SP 500, you wanted to...Ch. 12 - Prob. 9PCh. 12 - You need to estimate the equity cost or capital...Ch. 12 - In mid-2012, Ralston Purina had AA-rated, 10-year...Ch. 12 - Prob. 15PCh. 12 - Prob. 16PCh. 12 - Prob. 17PCh. 12 - Your firm is planning to invest in an automated...Ch. 12 - Consider the setting of Problem 18. You decided to...Ch. 12 - Prob. 20PCh. 12 - In mid-2015, Cisco Systems had a market...Ch. 12 - Weston Enterprises is an all-equity firm with two...Ch. 12 - Prob. 24PCh. 12 - Your company operates a steel plant. On average,...Ch. 12 - Prob. 26PCh. 12 - You would like to estimate the weighted average...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
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- Vostan Industries wants to know its cost of equity. The risk-free rate is 5%,the expected return of the market(Erm) is 7%, and Vostan’s equity beta is 1.5. What is Vostan’s cost of equity (Ke) using CAPM approach?arrow_forwardYou want to estimate the cost of equity of firm A using CAPM. Firm A has a beta of 1.3. Assume that the return on the market portfolio is 8.52%, and the risk-free rate is 3%. What is the cost of equity of firm A? Group of answer choices There is not enough information to answer this question. 10.17% 11.74% 14.21% 12.11%arrow_forwardSuppose the current risk-free rate of return is 3.5 percent and the expected market return is 9 percent. Fashion Faux-Pas’ common stock has a beta coefficient equal to 1.4. Using the CAPM approach, compute the firm’s cost of retained earnings.arrow_forward
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