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Phantasy [73]
2 years ago
10

"Davcher, Inc. is considering a project for next year, which will cost $5 million. Davcher plans to use the following combinatio

n of debt and equity to finance the investment. Issue $1.5 million of 10-year bonds at a price of 101, with a coupon/contract rate of 4%, and flotation costs of 2% of par. Use $3.5 million of funds generated from retained earnings. The equity market is expected to earn 8%. U.S. Treasury bonds are currently yielding 3%. The beta coefficient for Davcher, Inc. is estimated to be .70. Davcher is subject to an effective corporate income tax rate of 30 percent. (8 points) " Compute Davcher's expected rate of return using the Capital Asset Pricing Model (CAPM).
Business
1 answer:
AfilCa [17]2 years ago
6 0

Based on the U.S. Treasury bond rate, the market return and the beta, Davcher's expected rate of return would be 6.5%.

<h3>What is the expected rate of return?</h3>

Using the Capital Asset Pricing Model (CAPM), the expected rate of return would be:

= Risk free rate + Beta x Market premium

Market premium:

= Market return - risk free rate

= 8% - 3% rate of treasury bonds

= 5%

Expected rate of return is:

= 3% + 0.70 x 5%

= 6.5%

Find out more on the Capital Asset Pricing Model at brainly.com/question/15851284.

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Explanation:

Selling Necessity Goods

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These organizations have achieved so much because they have adapted their strategies to a changing world, and because they are always looking for ways to improve people’s lives.  It is these traits that position them well no matter what the future holds.

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Newman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just​ completed, Grips earned ​$
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Answer:

Explanation:

D0 = $1.88

D1 = 1.88*1.25 = $2.35

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D3 = 2.94*1.25 = $3.67

PV of Dividends:

r = 12%

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Pv of 64.8 is 64.8/(1.12)^3 = $46.3

So, the maximum price per share is 11.5+46.3 = $57.8

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If marginal utility is rising, then total utility is also rising.
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\huge{\textbf{\textsf{{\color{navy}{An}}{\purple{sw}}{\pink{er}} {\color{pink}{:}}}}}

<h2>TRUE</h2>

<h2>TRUE</h2>

  • Thanks
  • Hope it helps :).
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