Answer:
The calculations are shown below:
Explanation:
The calculations are shown below:
a. The expected rate of return is
Return = Risk free return + Beta × (Market return - risk free return)
= 5% + 1.9 × (11.20% - 5%)
= 5% + 11.78%
= 16.78%
b. Now the alpha is
Alpha = Actual rate of return - Expected rate of return
= 9.2% - 16.78%
= - 7.58%
c. No , the CAPM is not valid as the expected rate of return is more than the actual rate of return
Financial records, A company’s competitors. Got it from quizlet!
Answer:C
Explanation: Collectability of the receivables is in doubt
Answer:
Weight of debt = 0.2453 or 24.53%
Weight of preferred stock = 0.0486 or 4.86%
Weight of common equity = 0.7061 or 70.61%
Explanation:
The WACC or weighted average cost of capital is the cost of a firm's capital structure. The capital structure of a company can consist of one or more of the following components namely debt, preferred stock and common stock.
To calculate the WACC, we use the market value of each component.
- The market value of debt is$101 million.
- The market value of common equity is 290.7 million
- The value of preferred stock is $20 million
Market value of common equity = 51 * 5.7 = 290.7 million
The weights to assigned to each components are,
Total weight of all components = 101 + 20 + 290.7 = 411.7 million
Weight of debt = 101 / 411.7 => 0.2453 or 24.53%
Weight of preferred stock = 20 / 411.7 => 0.0486 or 4.86%
Weight of common equity = 290.7 / 411.7 => 0.7061 or 70.61%
