You need to estimate the equity cost of capital for XYZ Corp. You have the following data

Question:

You need to estimate the equity for XYZ Corp. You have the following data available regarding past returns:

You need to estimate the equity cost of capital for

a. What was XYZ€™s average historical return?
b. Compute the market€™s and XYZ€™s excess returns for each year. Estimate XYZ€™s beta.
c. Estimate XYZ€™s historical alpha.
d. Suppose the current risk-free rate is 3%, and you expect the market€™s return to be 8%. Use the CAPM to estimate an expected return for XYZ Corp.€™s stock.
e. Would you base your estimate of XYZ€™s equity cost of capital on your answer in part (a) or in part (d)? How does your answer to part (c) affect your estimate?Explain.

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...