In December 1995, Boise Cascade's stock had a beta of 0.95. The Treasury bill rate at the

Question:

In December 1995, Boise Cascade's stock had a beta of 0.95. The Treasury bill rate at the time was 5.8%, and the Treasury bond rate was 6.4%. The firm had debt outstanding of $1.7 billion and a market value of equity of $1.5 billion; the corporate marginal tax rate was 36%.

a. Estimate the expected return on the stock for a short-term investor in the company. (The arithmetic average risk premium for stocks over T. Bills was 8.76% at the time of this assessment)

b. Estimate the expected return on the stock for a long-term investor in the company.

c. Estimate the cost of equity for the company.

Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing... Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the... 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...