It is 1 January 1997. Normal America, Inc. (NA) has paid a year-end dividend in each of

Question:

It is 1 January 1997. Normal America, Inc. (NA) has paid a year-end dividend in each of the last 10 years, as shown by the table below:

a. Calculate NA?s ? with respect to the S&P 500.

b. Suppose that the Treasury bill rate is 5.5% and that the expected return on the market is E(r_M) = 13%. If the corporate tax rate T_C = 35%, calculate NA ? s cost of equity using both the classic CAPM and tax-adjusted model.

c. Assume that NA?s cost of debt is 8%. If the company is financed by 1/3 equity and 2/3 debt, what is its weighted average cost of capital using each of the two CAPM models?

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Cost Of Debt
The cost of debt is the effective interest rate a company pays on its debts. It’s the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking... Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the... Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...