100% satisfaction guarantee Immediately available after payment Both online and in PDF No strings attached
logo-home
Summary GB 550M.docx A Investment Project Value GB550 Financial Management Unit 3 Assignment Purdue Global University Investment Project Value 1. Complete problem: Cost of Equity-CAPM $4.99   Add to cart

Summary

Summary GB 550M.docx A Investment Project Value GB550 Financial Management Unit 3 Assignment Purdue Global University Investment Project Value 1. Complete problem: Cost of Equity-CAPM

 25 views  0 purchase
  • Course
  • Institution

GB 550M3 A Investment Project Value GB550 Financial Management Unit 3 Assignment Purdue Global University Investment Project Value 1. Complete problem: Cost of Equity-CAPM

Preview 2 out of 6  pages

  • February 7, 2021
  • 6
  • 2020/2021
  • Summary
avatar-seller
INVESTMENT PROJECT VALUE 1




Investment Project Value

GB550 Financial Management

Unit 3 Assignment

Purdue Global University

, INVESTMENT PROJECT VALUE
2




Investment Project Value



1. Complete problem: Cost of Equity-CAPM

XYZ, Inc. has a beta of 0.8. The yield on a 3-month T-bill is 5%, and the yield on a 10-year T-

bond is 7%. The market risk premium is 5.5%, and the return on an average stock in the market

last year was 20%. What is the estimated cost of common equity using the CAPM?Show your

work.

Cost of Equity = Risk-free rate + Equity risk premium

= Risk-free rate + (Beta coefficient x market risk premium)

Cost of Equity (Ke) = Rf + (Rm - Rf)

Rf = Risk free rate (7%)

= Beta (0.8)

Rm - Rf = Market risk premium (5.5%)

Therefore,

Ke = 7% + 0.8 (5.5%)

= 0.07 + 0.8 (0.055)

= 0.07 + 0.044

= 0.114

Ke = 11.4%

Therefore, the estimated cost of common equity is 11.4%.

The benefits of buying summaries with Stuvia:

Guaranteed quality through customer reviews

Guaranteed quality through customer reviews

Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.

Quick and easy check-out

Quick and easy check-out

You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.

Focus on what matters

Focus on what matters

Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!

Frequently asked questions

What do I get when I buy this document?

You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.

Satisfaction guarantee: how does it work?

Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.

Who am I buying these notes from?

Stuvia is a marketplace, so you are not buying this document from us, but from seller helperatsof1. Stuvia facilitates payment to the seller.

Will I be stuck with a subscription?

No, you only buy these notes for $4.99. You're not tied to anything after your purchase.

Can Stuvia be trusted?

4.6 stars on Google & Trustpilot (+1000 reviews)

72964 documents were sold in the last 30 days

Founded in 2010, the go-to place to buy study notes for 14 years now

Start selling
$4.99
  • (0)
  Add to cart