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Accounting

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1. Below you are presented with hypothetical stock prices for two different stocks over a ten year period.;a. Calculate the yearly returns for both stocks;Year Stock Price A Yearly Return (%) Stock Price B Yearly Return (%);1 $ 100 $ 65;2 $ 112 12.0% $ 70;3 $ 118 $ 79;4 $ 106 $ 83;5 $ 110 $ 80;6 $ 91 $ 95;7 $ 105 $ 94;8 $ 125 $ 108;9 $ 155 $ 120;10 $ 185 $ 125;b. Calculate the average yearly returns;c. Calculate the standard deviation;d. Which if these stocks was less risky? Explain;2 Assume the risk-free rate is 3.5%, the beta of a company is 0.8 and the market-level return is 12%.;a. Provide the CAPM equation and use it to solve for the required return of the company's equity.;CAPM Equation;Required Return;b. Now assume the beta is 1.6. What is the required return of the company's equity?;Required Return;c. What happens as beta increases?;3. Nessumsar compay develops educational materials. It has a pre-tax cost of debt of 8.0% and a cost of equity of 11.0%. It has a marginal tax rate of 40%, $50 million of debt and $100 million of equity.;a. Calculate the company's overall cost of capital.;Cost of Debt;Pre-tax Cost of Debt;Tax Rate;After-tax Cost of Debt 0.00%;Cost of Equity;Cost of Equity;Weights;Dollar Value ($ in millions) % Amount;Debt;Equity;Total $ - 0.0%;Cost of Capital;Formula;Calculation

 

Paper#76303 | Written in 18-Jul-2015

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