If in problem 2 the beta (b) were 1.9 and the other values remained the same, what is the new value of Ke? What is the relationship between a higher beta and the required rate of return (Ke)?
Answer to relevant QuestionsAssume the same facts as in problem 2, but with an ERP of 9 percent. What is the new value for Ke? What does this tell you about investors’ feelings toward risk based on the new ERP? If D1 = $3.00, Ke = 10 percent, and g = 12 percent, can Formula 7–5 be used to find P0? Explain the reasoning behind your answer. In computing return on assets, how does the age of the assets influence the interpretation of the values? Security Analyst A thinks the Collins Corporation is worth 14 times current earnings. Security Analyst B has a different approach. He assumes that 45 percent of earnings (per share) will be paid out in dividends and the ...A firm has the following financial data: Current assets $600,000 Fixed assets 400,000 Current liabilities 300,000 Inventory 200,000 If inventory increases by $100,000, what will be the impact on the current ratio, ...
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