Exam 12: Estimating the Cost of Capital

Use the table for the question(s)below. Consider the following stock price and shares outstanding data: -Assume that you have $100,000 to invest and you are interested in creating a value-weighted portfolio of these four stocks.The number of shares of Walmart that you would hold in your portfolio is closest to:

Use the following information to answer the question(s)below.Consider the following information regarding corporate bonds: -Wyatt Oil has a bond issue outstanding with seven years to maturity,a yield to maturity of 7.0%,and a BBB rating.The bondholders' expected loss rate in the event of default is 70%.Assuming a normal economy the expected return on Wyatt Oil's debt is closest to:

Use the following information to answer the question(s)below. -Wyatt Oil's average historical return is closest to:

Use the equation for the question(s)below.Consider the following linear regression model: (Ri - rf)= ai + bi(RMkt - rf)+ ei -The ei in the regression:

Use the table for the question(s)below. Consider the following stock price and shares outstanding data: -The total market capitalization for all four stocks is closest to:

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Your firm is planning to invest in a new electrostatic power generation system.Electrostat Inc is a firm that specializes in this business.Electrostat has a stock price of $25 per share with 16 million shares outstanding.Electrostat's equity beta is 1.18.It also has $220 million in debt outstanding with a debt beta of 0.08.Your estimate of the asset beta for electrostatic power generators is closest to:

Use the following information to answer the question(s)below. Luther Industries has 25 million shares outstanding trading at $18 per share.In addition,Luther has $150 million in outstanding debt.Suppose Luther's equity cost of capital is 13%,its debt cost of capital is 7%,and the corporate tax rate is 21%. -Luther's unlevered cost of capital is closest to:

Use the following information to answer the question(s)below. Suppose the market consists only of Merck (MRK)and Boeing (BA).Merck stock is trading for $36.70 per share with 2.11 billion shares outstanding while Boeing has 697.5 million shares outstanding and a market capitalization of $38.223 billion.Assume that you hold the market portfolio. -Boeing's stock price is closest to:

Use the following information to answer the question(s) below Assume that the risk-free rate of interest is 3% and you estimate the market's expected return to be 9%. -The equity cost of capital for "Miney" is closest to:

Which of the following is NOT considered to be an important choice when estimating beta?

Use the table for the question(s)below. Consider the following stock price and shares outstanding data: -Assume that you have $100,000 to invest and you are interested in creating a value-weighted portfolio of these four stocks.The percentage of the shares outstanding of Boeing that you would hold in your portfolio is closest to:

Rearden Metal has a bond issue outstanding with ten years to maturity,a yield to maturity of 8.6%,and a B rating.The bondholders' expected loss rate in the event of default is 50%.Assuming a normal economy,the expected return on Rearden Metal's debt is closest to:

Use the following information to answer the question(s)below. The risk-free rate of interest is 3% and the market risk premium is 5%. -The cost of capital for the oil refining division is closest to:

Use the following information to answer the question(s)below.Consider the following information regarding corporate bonds: -Your estimate of the asset beta for Wyatt Oil is closest to:

Assume that the S&P 500 currently has a dividend yield of 3% and that on average,the dividends of S&P 500 firms have increased by about 5% per year.If the risk-free interest rate is 4%,then your estimate for the future market risk premium is:

Which of the following statements is FALSE?

Use the following information to answer the question(s)below. -The Market's excess return for 2008 is closest to:

Use the following information to answer the question(s)below. -The Market's average historical return is closest to: