In an odd twist of fate, the return on the stock market has been exactly 1 percent in each of the last eight months. The return on Simon Entertainment stock in the past eight months has been as follows: 8%, 4%, 16%, –10%, 26%, 22%, 1%, –55%. From this information, estimate the beta of Simon stock.
Answer to relevant QuestionsRefer to Figure and answer the following questions. a. What return would you expect on a stock with a beta of 2.0? b. What return would you expect on a stock with a beta of 0.66? c. What determines the slope of the line in ...Why do managers focus on the effect that an investment will have on reported earnings rather than on the investments cash flow consequences? Why is it important for the financial analyst to: (a) Focus on incremental cash flows, (b) Ignore financing costs, (c) Consider taxes, and (d) Adjust for noncash expenses when estimating projects relevant cash flows? What is meant by potential investments relevant cash flows? What are sunk costs and cannibalization, and do they affect the process of determining proposed investments incremental cash flows? The cost of debt, rd, is generally less than the cost of equity, re, because debt is a less risky security. A naive application of the WACC formula may suggest that a firm could lower its cost of capital (thereby raising the ...
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