Exam 12: Estimating the Cost of Capital

Use the following information to answer the question(s)below. Suppose all possible investment opportunities in the world are limited to the four stocks listed in the table below: -Suppose that you have $100,000 invested in the market portfolio and that the stock price of Taggart Transcontinental suddenly drops to $7.80 per share.Which of the following trades would you need to make in order to maintain your investment in the market portfolio: 1.Buy approximately 1140 shares of Taggart Transcontinental 2.Sell approximately 256 shares of Rearden Metal 3.Sell approximately 57 shares of Wyatt Oil 4.Sell approximately 148 shares of Nielson Motors

Which of the following statements is FALSE?

Use the following information to answer the question(s)below. -Using the average historical excess returns for both Wyatt Oil and the Market portfolio,your estimate of Wyatt Oil's beta is closest to:

Your firm is planning to invest in a new power generation system.Galt Industries is an all-equity firm that specializes in this business.Suppose Galt's equity beta is 0.75,the risk-free rate is 3%,and the market risk premium is 6%.If your firm's project is all-equity financed,then your estimate of your cost of capital is closest to: