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kozerog [31]
3 years ago
14

The Market Outlet has a beta of 1.38 and a cost of equity of 14.945 percent. The risk-free rate of return is 4.25 percent. What

discount rate should the firm assign to a new project that has a beta of 1.25?
Business
1 answer:
evablogger [386]3 years ago
7 0

Answer:

The discount rate assign to a new project with a Beta of 1.25 is 13.94%

Explanation:

The applicable formula is the Capital Asset Pricing Model formula of Miller and Modgliani  quoted below:

Ke = Rf + (Market risk premium x Beta)

Currently Ke=14.945%

Beta =1.38

Risk free rate of return (Rf) is 4.25%

Market risk premium is the unknown

14.945%=4.25%+(Market Risk Premium)*1.38

14.945%-4.25%=Market Risk Premium*1.38

10.70% =Market Risk Premium*1.38

10.70%/1.38=Market Risk Premium

Market Risk Premium =7.75%

However, the new project cost of equity has to be determined due to having a different Beta factor of 1.25(a different risk appetite)

Using the above formula, we have

Ke=4.25%+(7.75% *1.25)

Ke =13.94%

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The following information relates to Conejo Corporation for last year: Book value per share $ 40 Par value per share $ 12 Divide
Ede4ka [16]

Answer:

price earning ratio = 2

Explanation:

given data

Book value = $40 per share

Par value = $12 per share

Dividends =  $5 per share

Dividend payout ratio = 20 %  

Dividend yield ratio =  10 %

solution

first we get here market price per share by dividend yield ratio that is express as

dividend yield ratio = Dividends per share ÷ market price per share    ........................1

put here value we get

market price per share = \frac{5}{0.10}

market price per share = $50

and

now we get earning per share  by dividend payout ratio that is express as

dividend payout ratio  = dividend per share ÷  earning per share    .................................2

put here value we get

earning per share  = \frac{5}{0.20}

earning per share  = $25

so now we get here price earning ratio that is

price earning ratio = market price per share ÷ earning per share ..........................3

put here value we get

price earning ratio = \frac{50}{25}

price earning ratio = 2

4 0
3 years ago
The largest cattle rancher in a given region will be unable to have a __________ when sufficient numbers of smaller cattle ranch
stepladder [879]
<span>The largest cattle rancher in a given region will be unable to have a __________ when sufficient numbers of smaller cattle ranchers provide sources of competition.

Monoply 
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7 0
3 years ago
In some cases, individuals who start a business have special voting rights that help them exercise more control over the firm. T
Olin [163]

individuals that have special voting rights owns a special class of stock called classified stock.

The classified stock refers to class of common stock that comes with special privileges like dividend rights or enhanced voting rights.

Usually, these stock are issued/owned by individual that started or co-start the business.

The classified stock is used to ensure the company's founders maintain its control over the establish company even without owning the majority of the common stock.

Therefore, the individuals that have special voting rights owns a special class of stock called the classified stock.

Read more about classified stock:

<em>brainly.com/question/23881482</em>

6 0
3 years ago
A watch manufacturer incurs a variable cost of $10 per watch and fixed costs of $400,000. To earn a 25 percent markup on selling
WITCHER [35]

Answer:

$22.50 per unit

Explanation:

Mark -up is the percentage of cost that is earned as profit.

Using mark-up,

Selling price = Total cost + total profit

Total cot = Fixed cost + variable cost

Total costs = $400,000 +  (10× 50,000)

                   = $900,000

Sales revenue = 125%× 900,000

                       = 1,125,000

Selling price per unit = Sales revenue/units

                       =1,125,000/50,000

                     = $22.50 per unit

6 0
3 years ago
Read 2 more answers
In the short run, if average variable cost equals $50, average total cost equals $75, and output equals 100, the total fixed cos
musickatia [10]

Answer: $2500

Explanation:

From the question,

Average variable cost(AVC) = $50

Average total cost (ATC) = $75

Output (Q) = 100

Since Average fixed cost is the difference between the average total cost and the average Variable cost. This will be:

AFC = ATC - AVC

AFC = $75 - $50

AFC = $25

We should note that:

AFC = TFC / Q

TFC = AFC × Q

TFC = $25 × 100

TFC = $2500

Therefore, total fixed cost is $2500

5 0
3 years ago
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