Question
1 . Suppose the following values exist in a market for RenTech common stock, a renewable energy firm. What is company-specific equity risk premium for
1. Suppose the following values exist in a market for RenTech common stock, a renewable energy firm. What is company-specific equity risk premium for RenTech common stock?
| US Treasury Notes (2 year) | 2.96% |
| US Treasury Bond (20 year) | 6.95% |
| Bank Loan | 7.30% |
| Inflation | 1.13% |
| Dividend Yield | 8.97% |
| Average Market Return (renewables) | 12.69% |
| RenTech - beta (price volitility compared to market average = 1) | 1.63 |
| RenTech - alpha (yield probability compared to market average = 1) | 1.02 |
2. Suppose a firm has the following capital components and costs. What is its weight of the firm's common equity we might use in the WACC equation assuming a business tax rate of 26%?
| Capital Components | Value | Cost |
| Common Equity | 6,030 | 15.27 |
| Preferred Stock | 1,732 | 100,000.00 |
| Long-term Debt | 3,303 | 7.48 |
| Cash | 549 | 0.51 |
3. Suppose the following values exist in a market for RenTech common stock, a renewable energy firm. What is RenTech's cost of equity capital using the CAPM equation? Express your answer as a percentage rounded to two decimal places; for example, if you calculate a value of .1345, then you should input your answer as 13.45% and NOT 13.5% or 0.1345
| US Treasury Notes (2 year) | 2.26% |
| US Treasury Bond (20 year) | 6.73% |
| Bank Loan | 6.86% |
| Inflation | 1.40% |
| Dividend Yield | 5.24% |
| Average Market Return (renewables) | 10.97% |
| RenTech - beta (price volitility compared to market average = 1) | 1.39 |
| RenTech - alpha (yield probability compared to market average = 1) | 1.29 |
4. Suppose the following values exist in a market for RenTech common stock, a renewable energy firm. What is RenTech's the cost of debt capital (RD) capital in this market?
| US Treasury Notes (2 year) | 2.31% |
| US Treasury Bond (20 year) | 4.71% |
| Bank Loan | 7.02% |
| Inflation | 2.71% |
| Dividend Yield | 2.68% |
| Average Market Return (renewables) | 13.71% |
| RenTech - beta (price volitility compared to market average = 1) | 1.32 |
| RenTech - alpha (yield probability compared to market average = 1) | 1.0
|
5. Suppose RenTech, a renewable energy firm, is expected to pay a $1.58 dividend at the end of the next calendar quarter on it common stock and that this dividend is also expected to rise by 2.51% each year. If the common stock has a market price of $12.80 per share, what is the expected cost of equity capital for the firm?
6. Suppose RenTech, a renewable energy firm, is expected to pay a dividend at the end of the next calendar quarter on it common stock and that this dividend is also expected to rise by 3.19% each year. If the common stock has a market price of $14.03 per share and is expected to offer a dividend yield of 7.97%, what is the amount of the dividend RenTech is expected to pay?
7. Suppose a firm has the following capital components and costs. What is the value of its capital components (V) as used in the WACC equation%?
| Capital Components | Value | Cost |
| Common Equity | 6,794 | 15.47 |
| Preferred Stock | 1,224 | 10.67 |
| Long-term Debt | 3,397 | 6.68 |
| Cash | 528 | 1 |
8. Suppose a firm has the following capital components and costs. What is its weighted average cost of capital assuming a business tax rate of 26%? Express your answer as a percentage rounded to two decimal places; for example, if you calculate a value of .1345, then you should input your answer as 13.45% and NOT 13.5% or 0.1345
| Capital Components | Value | Cost |
| Common Equity | 6,180 | 14 |
| Preferred Stock | 1,171 | 12 |
| Long-term Debt | 2,297 | 5 |
| Cash | 513 | 0 |
9. Suppose the following values exist in a market for RenTech common stock, a renewable energy firm. What is the equity risk premium in the market for renewable energy stocks?
| US Treasury Notes (2 year) | 2.64% |
| US Treasury Bond (20 year) | 5.17% |
| Bank Loan | 7.88% |
| Inflation | 2.31% |
| Dividend Yield | 8.45% |
| Average Market Return (renewables) | 10.05% |
| RenTech - beta (price volitility compared to market average = 1) | 1.43 |
| RenTech - alpha (yield probability compared to market average = 1) | 1.81 |
10. What is the cost of equity capital (RE) in the following Security Market Line image?
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Investments Analysis And Management
Authors: Charles Jones, Nick Jones
11th Edition
0470477121, 9780470477120
