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Mariulka [41]
3 years ago
14

Piedmont Hotels is an all-equity company. Its stock has a beta of .87. The market risk premium is 7.4 percent and the risk-free

rate is 4.0 percent. The company is considering a project that it considers riskier than its current operations so it wants to apply an adjustment of 2.2 percent to the project's discount rate. What should the firm set as the required rate of return for the project
Business
1 answer:
vovikov84 [41]3 years ago
7 0

Answer:

12.64%

Explanation:

In this question, we apply the Capital Asset Pricing Model (CAPM) formula which is shown below

Expected rate of return = Risk-free rate of return + Beta × (Market rate of return - Risk-free rate of return)

= 4% + 0.87 × 7.4%

= 4% + 6.438%

= 10.438%

The Market rate of return - Risk-free rate of return)  is also known as the market risk premium and the same is applied.

Now the required rate of return would be

= 10.438% + 2.2%

= 12.64%

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6 0
3 years ago
A management consulting team needs a team of four to analyze the operations of a new client. The team should comprise an account
exis [7]

Answer:

720

Explanation:

Given:

The management consulting team should comprise an accountant, a production specialist, a finance specialist, and a management specialist. On its staff, the consulting firm has available six accountants, five production specialists, three finance specialists, and eight management specialists

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4 0
2 years ago
During the current month, Standard Corporation completed Job 310 and Job 312. Job 310 cost $71,000 and Job 312 cost $51,500. Job
julsineya [31]

Answer:

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3 years ago
The market capitalization of this company is $140 million, it's beta is 0.75, the risk free rate is 2% and the market risk premi
tiny-mole [99]

Answer:

Ans. The cost of equity capital is 6.5 (6.5%)

Explanation:

Hi, all we need to do is fill the following equation with the data from the problem.

r(e)=rf+beta*(MRP)

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rf = Risk free rate (in our case, 2%)

MRP = market risk premium (in our case, 6%)

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Therefore, this is what we get.

r(e)=0.02+0.75*0.06=0.065

So the cost of equity capital is 6.5% or 6.5 as the problem suggests to answer.

Best of luck.

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