The following data represent total assets, book value of common shareholders' equity, and market value of common
Question:
The following data represent total assets, book value of common shareholders' equity, and market value of common shareholders' equity (dollar amounts in millions) for Microsoft, Intel, and Dell. These data also include market betas for these three firms and analysts' consensus forecasts of net income and earnings per share. Assume that for each firm, net income and comprehensive income will be identical. Assume that the risk-free rate of return is 3.0% and the market risk premium is 5.0%.
| Microsoft | Intel | Dell | |
| Total Assets | $108,704 | $71,119 | $44,533 |
| Common Equity: | |||
| Book Value | $57,083 | $45,911 | $8,917 |
| Market Value | $248,510 | $131,260 | $22,270 |
| Market Beta | 1.00 | 1.12 | 1.28 |
| Analysts' Consensus Forecasts of Net Income | $22,848 | $12,575 | $3,432 |
| Analysts' Consensus Forecasts of EPS | $2.72 | $2.50 | $1.95 |
Required
a. Using the CAPM, compute the required rate of return on equity capital for each firm.
| Microsoft | Intel | Dell |
| |
b. Project required income for each firm.
| Microsoft | Intel | Dell |
| |
c. Project residual income for each firm.
| Microsoft | Intel | Dell |
| |
Expert Answer:
a Required rate of return on equity capital Ke for each firm CAPM Formula Ke Rf Beta MRP Where Rf ... View the full answer
Financial reporting, financial statement analysis and valuation a strategic perspective
ISBN: 978-0324789416
7th Edition
Authors: James M Wahlen, Stephen P Baginskl, Mark T Bradshaw
