Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please answer these questions as soon as possible! Help me!!! 1) If the Beta coefficient for a publicly traded company is 1.25, and the average

Please answer these questions as soon as possible! Help me!!!

1) If the Beta coefficient for a publicly traded company is 1.25, and the average market return for the stock is 12%, and the interest yield on 10-year US Treasury Bonds is 4%, what is the required rate of return?

2) Select any type of company (e.g., your employer or the company for your current event project) and set up the equation for calculating the required or expected rate of return using the APT (Arbitrage Pricing Theory) model. Use your own estimates for the weighting of each factor, so that the equation accurately generates a required or expected rate of return that is mathematically correct. [Helpful hint: do not spend too much time or "overthink" this problem as this merely a hypothetical exercise to measure your comprehension on how the APT model can be applied in real world situations.] ALSO you are not called upon to calculate an E(r) but to set up the equation with the appropriate weighting factors only. In other words, you will need to list actual or hypothetical numbers for the weighting factors.

3) If a company decides to increase its ratio of total debt / total assets from 30% to 50% as a means of increasing its return on equity (ROE), and it is able to maintain a 7.5% return on assets (ROA), what is the return on equity (ROE) with each of the two different total debt/total asset ratios?

4) In an earlier problem you were asked to calculate the Return on Equity based on changes to the financial leverage or debt level. What is the critical underlying assumption that enables a firm to increase Return on Equity via increased financial leverage or higher debt?

5) In the context of Time Value of Money, what is the most dynamic or important variable used in valuation? Explain.

6) In the context of Time Value of Money, the Horizon or Terminal Value for the NU Coffee Company is given as $150,000, its most recent annual cash flow was $30,000 and its long-term growth rate is 3%. What is the required rate of return?

7) If a company's required rate of return is 22%, its average market return is 18%, and the interest yield on 10-year US Treasury Bonds is 4%, what is the company

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

Fundamentals Of Futures And Options Markets

Authors: John C. Hull

4th Edition

0130176028, 9780130176028

More Books

Students also viewed these Finance questions

Question

Discuss whether we can control stereotyping.

Answered: 1 week ago