Finance problems regarding the CAPM formula and WACC formula?

Answers:3   |   LastUpdateAt:2015-03-13 02:09:46  

Asked at 2012-08-26 07:22:19
I have problems to solve these four problems in my task of Finance, I have tried several times, but still could not find the right answer. MedlinePlus MedlinePlus 1. A company is 40% funded by risk-free debt. The interest rate is 10%, the market risk premium is 8% expected, and the beta of the common stock of the company is 0.5. MedlinePlus MedlinePlus Requirement 1: MedlinePlus What is the company cost of capital? MedlinePlus MedlinePlus CAPM formula I used in this% on, 10 * 0.4 + 0.5 (8% +10% +10% * 0.4 * 0.4), obtained 12%, bad, I tried to put the numbers in the answer box, 10%, 8%, 6% all evil. MedlinePlus MedlinePlus MedlinePlus Requirement 2: MedlinePlus Suppose the firm pays tax at the rate of 35%. What is the after-tax WACC? MedlinePlus MedlinePlus I could not understand what is the ratio of equity and debt in this ... MedlinePlus MedlinePlus MedlinePlus MedlinePlus 2. Nero Violins has the following capital structure: MedlinePlus MedlinePlus MedlinePlus Security Beta Total market value ($ Millions) MedlinePlus Debt 0 MedlinePlus $ 100 Preferred Stock 0.20 40 MedlinePlus Common shares 299 1.20 MedlinePlus MedlinePlus Required: MedlinePlus (A)
What is the beta of the company's assets? (Hint: What is the beta of a portfolio of all securities of the Company) (. Round your answer to two decimal places) MedlinePlus MedlinePlus MedlinePlus MedlinePlus (B)
Assume that the CAPM is the interest rate and risk-free right and a 5% market risk premium of 6%. What discount rate should Nero set for investments to expand the scale of its operations without changing its asset beta? (Round your answer to two decimal places. Omit the "%" sign in your response.) MedlinePlus MedlinePlus The problem I'm completely stuck ... MedlinePlus MedlinePlus MedlinePlus 3. Binomial Tree Farm Financing includes $ 5 million in bank loans. Their common heritage is shown in the Annual Report of the Binomial to $ 6,670,000. Has 500,000 shares outstanding, which trade on the Stock Wichita at $ 18 per share. MedlinePlus MedlinePlus Required: MedlinePlus Calculation of debt and equity ratio MedlinePlus MedlinePlus Debt Ratio = 5 / (5 +6.67 +9) = 24% wrong .... ($ 18 * 500000 = 9000000) MedlinePlus Equity Ratio = 6.67 9/5 6.67 +9 = 27% bad ... MedlinePlus MedlinePlus I'm stuck MedlinePlus MedlinePlus MedlinePlus 4. An oil company is drilling a series of new wells on the perimeter of an oil producing field. About 20% of the new wells will be dry holes. Even if a new well strikes oil, there is still uncertainty about the amount of oil produced: 40% of new oil wells producing only 1,000 barrels per day strike, 60% produce 5,000 barrels per day MedlinePlus. MedlinePlus Required: MedlinePlus Projected annual cash income of a new perimeter well. Use a future oil price of $ 50 per barrel. (Write your answer in dollars, not millions. Omit the "$" sign in your response.) MedlinePlus MedlinePlus This I have no idea ... MedlinePlus MedlinePlus Please help! : (
Answer1PhilippaAnswered at 2012-07-16 05:35:03
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