(rE,

, beta, and P/E ratio) Using the Yahoo profile for Microsoft (MSFT) (given below):

a. What is Microsoft’s price–earnings (P/E) ratio, its β, and its debt to equity ratio? (Use the trailing P/E ratio.)11

b. Find MSFT’s recent stock price and its number of shares, and use them to compute MSFT’s market equity value. Does this accord with the Yahoo computation?

c. Assume that rf

= 3% and the E r( ) M = 8%. Compute MSFT’s cost of equity rE.