FREE Trial
Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

8. The ZZZ Corporation is all-equity financed, and it has a market value of assets of $100 million. The risk-free rate is 5% per year.

8. The ZZZ Corporation is all-equity financed, and it has a market value of assets of $100 million. The risk-free rate is 5% per year. The market-beta of the company's common stock is 1.5, the SMB-beta is -0.5, and the HML-beta is 0.3. The market (MKT) risk premium is 6%, the risk premium on SMB is 3%, and the risk premium on HML is 5%. What is the company's cost of equity capital based on the Fama-French three-factor model?

A. 6.0% B. 11.0% C. 14.0% D. 17.0%

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Brilliant Book Keeping How To Keep Your Business Efficient And Cost Effective

Brilliant Book Keeping How To Keep Your Business Efficient And Cost Effective

Authors: Martin Quinn

1st Edition

0273731785,0273746707

More Books

Students also viewed these Finance questions

Question

★★★★★
Picture the electron as a uniformly charged spherical shell, with charge e and radius R, spinning at angular velocity ro. (a) Calculate the total energy contained in the electromagnetic fields. (b)...

Answered: 1 week ago

Question

★★★★★
Cain Incorporated reports net income of $15,000. Its comparative balance sheet shows the following changes: accounts receivable increased $6,000; inventory decreased $8,000; prepaid insurance...

Answered: 1 week ago

Question

★★★★★
2. How might your understanding of this occurrence in your personal relationships assist your understanding of public speaking?

Answered: 1 week ago

Question

★★★★★
Bandar Industries Berhad of Malaysia manufactures sporting equipment. One of the companys products, a football helmet for the North American market, requires a special plastic. During the quarter...

Answered: 1 week ago

Question

★★★★★
What is one major strength and one major weakness of the free cash flow valuation model?

Answered: 1 week ago

Question

★★★★★
Question 13 (0.2 points) Bavarian Sausage is expected to pay a $3.0 dividend next year. If the constant growth rate is 1%, and the stock currently sells for $26.48, what is the required rate of...

Answered: 1 week ago

Question

★★★★★
The Analects of Confucius strike a very pessimistic tone. True False

Answered: 1 week ago

Question

★★★★★
3. Megan's lawsuit is considered fairly large because of the extent of her injuries and the amount of damages. Which form of settlement request would her attorney most likely use? a. Settlement...

Answered: 1 week ago

Question

★★★★★
EJH has a beta of 1.2, CSH has a beta of 0.4, and KMS has a beta of 0.8. If you put 23% of your money in EJH, 20% in CSH, and 57% in KMS, what is the beta of your portfolio? The beta of your...

Answered: 1 week ago

Question

★★★★★
6. An economy consists of 2 risky assets, A and B, and a riskless asset. The risk-free rate of return is rf = 3%. The Market portfolio M consists of 50% in stock A and 50% in stock B, and the...

Answered: 1 week ago

Question

★★★★★
A company is 40% financed by risk-free debt. The interest rate is 10%, the expected market risk premium is 8%, and the beta of the companys common stock is .5. What is the company cost of capital?...

Answered: 1 week ago

Previous Question Next Question