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Category > Business & Finance Posted 20 May 2017 My Price 12.00

You need to estimate the equity cost

      1. You need to estimate the equity cost of capital for XYZ Corp. You have the following data avail- able regarding past returns:

 

 

Year

Risk-free Return

Market Return

XYZ Return

2007

3%

6%

10%

2008

1%

- 37%

- 45%

        1. What was XYZ’s average historical return?

        2. Compute the market’s and XYZ’s excess returns for each year. Estimate XYZ’s beta.

        3. Estimate XYZ’s historical alpha.

        4. Suppose the current risk-free rate is 3%, and you expect the market’s return to be 8%. Use the CAPM to estimate an expected return for XYZ Corp.’s stock.

        5. Would you base your estimate of XYZ’s equity cost of capital on your answer in part (a) or in part (d)? How does your answer to part (c) affect your estimate? Explain.

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Status NEW Posted 20 May 2017 10:05 AM My Price 12.00

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