You are examining Retail ETFs (exchange traded funds) and have compiled the following information on three of the ETFs. All Retail EV /Sales After-tax operating margin (next year) Sales/Capital Ratio Expected growth rate in operating income Life Cycle ETF 0.90 6.00% 2.00 3.00% Mature Luxury Retail ETF 2.25 16.00% 1.25 3.00% Mature Online Retail ETF 7.50 6.00

 

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You are examining Retail ETFs (exchange traded funds) and have compiled the following information on three of the ETFs. All Retail EV /Sales After-tax operating margin (next year) Sales/Capital Ratio Expected growth rate in operating income Life Cycle ETF 0.90 6.00% 2.00 3.00% Mature Luxury Retail ETF 2.25 16.00% 1.25 3.00% Mature Online Retail ETF 7.50 ΝΑ 6.00 ΝΑ High Growth a. If you assume that the All Retail ETF is priced fairly, estimate the cost of capital for a typical retail firm. (2 points) b. Now assume that you believe that luxury retailers have a 10% cost of capital. How under or over valued is the luxury retail ETF? (2 points)

Expert Answer

a . If you assume that the All Retail ETF is priced fairly , the cost of capital for a t View the full answer