Question
2- Anna is a Vice President at the J Corporation. The company is considering investing in a new factory and Anna must decide whether it
| 2- Anna is a Vice President at the J Corporation. The company is considering | ||
| investing in a new factory and Anna must decide whether it is a feasible | ||
| project. In order to assess the viability of the project, Anna must first calculate | ||
| the rate of return that equity holders expect from the company stock. The | ||
| annual returns for J Corp. and for a market index are given below. Currently, | ||
| the risk-free rate of return is 1.8% and the market risk-premium is 7.4%. | ||
a) What is the beta of J Corp.'s stock? 2 decimal places
b) Using the CAPM model, what is the expected rate of return on J Corp. stock for the coming year?
(Round your answer to one one-hundreth of a percent)
| Year | J Corp. Return (%) | Market Return (%) |
| 1 | -1.83 | -3.60 |
| 2 | 12.71 | 15.78 |
| 3 | 10.49 | 12.83 |
| 4 | 11.24 | 13.83 |
| 5 | -6.41 | -9.70 |
| 6 | 12.97 | 16.13 |
| 7 | 27.48 | 35.48 |
| 8 | 10.66 | 13.05 |
| 9 | 5.82 | 6.60 |
| 10 | 13.46 | 16.78 |
| 11 | -3.36 | -5.64 |
| 12 | -0.40 | -1.70 |
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Refer to question 2 . now
| 3- Refer to Question 2. Now that Anna has determined an appropriate rate | ||
| of return for J Corp.'s stock, she must calculate the firm's Weighted Average | ||
| Cost of Capital (WACC). There are currently 58.7 Million | ||
| J Corp. common shares outstanding. Each share is currently priced at 7.34. As well as the firm has 7,000 bonds outstanding and each bond has a face value of 10,000 a yield to maturity of 3.78% and quoted price 10878.30 J Corp | ||
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