Kellogg Company manufactures cereal and other convenience food under its many well-known brands such as Kellogg's, Keebler, and Cheez-It. The company, with over $13.5 billion in annual sales worldwide, partially finances its operation through the issuance of debt. At the beginning of its 2018 fiscal year, it had $8.25 billion in total debt. At the end of fiscal year 2018, its total debt had increased to $8.72 billion. Its fiscal 2018 interest expense was $287 million, and its assumed statutory tax rate was 21%.

Kellogg Company has an estimated market beta of 0.85. Assume that the expected risk-free rate is 2.1% and the expected market premium is 5%.

a. What does Kellogg's market beta imply about its stock returns?

A beta of 0.85 indicates Kellogg's stock is less volatile than the market index.

A beta of 0.85 indicates Kellogg's stock is more volatile than the market index.

A beta of 0.85 indicates Kellogg's stock moves perfectly with the market index.

Mark 1.00 out of 1.00

b. Estimate Kellogg's cost of equity capital.

Round answer to two decimal places (ex: 0.02345 = 2.35%).

Answer rating: 100% (QA)

Kelloggs Company Capital Analysis a Kelloggs Market Beta A beta of 085 indicates Kelloggs stock is l... View the full answer