Hello, I am having difficulty figuring out these problems for my case study. Can anyone help and
Question:
Hello, I am having difficulty figuring out these problems for my case study. Can anyone help and explain how to do the calculations? Especially for Part A to C? I can't seem to determine the beta and risk free rate and market return to figure out the market risk premium for the Cost of Equity Equation. And I am not sure how I would estimate WACC since I believe I need the Cost of Equity in there? I am having a hard time figuring out what numbers goes into the equation.
Also, I don't quite understand what Part C is asking for.?
Lastly, my professor said Rm can be 10.5%.?
1. Let’s examine the details of how to estimate the WACC. Let’s go step-by-step. Where shall we get started?
2. The weighted-average cost of capital is a simple formula. Yet it seems that reasonable people can disagree about the estimates. How can there be such a range of cost of capital estimates? Please summarize the issues.
3. What is an appropriate required rate of return against which to evaluate the prospective IRRs from the Boeing 7E7?
According to the case study, it is stated that the computer internal rate of return (IRR) should be equal to 16%. If NPV > 0, the project should be taken, if less than 0, the project should be rejected, if NPV = 0, the project should be taken with caution.
A. Please use the capital asset pricing model to estimate the cost of equity. At the date of the case, the 74-year equity market risk premium (EMRP) was estimated to be ___. Which beta and risk-free rate did you use? Why?
B. When you used the capital asset pricing model, which risk-premium and risk-free rate did you use? Why?
C. Which capital-structure weights did you use? Why?