The historical returns data for the past three years for AAA's stock is -6.0%, 15%, 15% and that of the market portfolio is 10%, 10% and 16%. If the risk-free rate of return is 2 %, what is the cost
The historical returns data for the past three years for AAA's stock is -6.0%, 15%, 15% and that of the market portfolio is 10%, 10% and 16%. If the risk-free rate of return is 2 %, what is the cost of equity capital according to the CAPM? Calculate your answer in decimal form, and precise to three digits after the comma.
The market value of AAA's common stock is 40 million and the market value of the risk-free debt is 60 million. The beta of the company's common stock is 1.31, and the expected market risk premium is 0.067. If the Treasury bill rate is 6%.
What is the firm's cost of capital, in decimal form, precise to three digits after the comma?
- Expert Answer
To calculate the cost of equity capital using the CAPM we can use the following formula re rf rm rf View the full answer
Corporate Finance A Focused Approach
ISBN: 978-1305637108
6th edition
Authors: Michael C. Ehrhardt, Eugene F. Brigham
Cannot find your solution?
Post a FREE question now and get an answer within minutes*.
Related Video
Treasury stock refers to shares of a company\'s own stock that the company has bought back from its shareholders and now holds as a form of asset on its balance sheet. When a company buys back its own stock, it reduces the number of outstanding shares in the market, which can potentially increase the value of the remaining shares. Treasury stock can be acquired through a variety of methods, such as open market purchases, negotiated transactions, or as a result of converting convertible securities. Companies may buy back their own shares for a number of reasons, including to return capital to shareholders, to signal confidence in the company\'s future, or to use the shares for employee stock option plans. While treasury stock does not pay dividends, it can be reissued by the company at a later time, which could dilute the value of the remaining shares. Companies are required to report their treasury stock holdings in their financial statements.