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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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Answer:

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Explanation:

Special identification allocation method: Under this method, the allocation is done on the basis of days, weeks, etc to know how much inventory is left on the particular date.

First we have to calculate the income of one day so that we can easily compute for the 29 days. The calculation is shown below.

One day income = Total income ÷ Number of days in a year

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3 years ago
Bruce & Co. expects its EBIT to be $100,000 every year forever. The firm can borrow at 11 percent. Bruce currently has no de
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Answer:

15.16 percent

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<h3>What is penetration price strategy?</h3>

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Answer:

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