Corporate Finance :Capital asset pricing model

發布時間：2020-12-17 11:08編輯：融躍教育CFA

  Questions 1:

  A firm with a marginal tax rate of 40% has a weighted average cost of capital of 7.11%. The before-tax cost of debt is 6%, and the cost of equity is 9%. The weight of equity in the firm’s capital structure is closest to:

  A 、79%.

  B、 65%.

  C 、37%.

  Questions 2:

  Which method of calculating the firm’s cost of equity is most likely to incorporate the long-run return relationship between the firm’s stock and the market portfolio?

  A、 Capital asset pricing model

  B 、Dividend discount model

  C、 Bond yield plus risk premium approach

  View answer resolution

  【Answer to question 1】B

  【analysis】

  B is correct.

  A is incorrect. It is calculated by dividing 7.11 by 9.

  C is incorrect. It fails to adjust debt for taxes.

  【Answer to question 2】A

  【analysis】

  A is correct. The capital asset pricing model uses the firm’s equity beta, which is computed

  from a market model regression of the company’s stock returns against market returns.

  B is incorrect. Dividend discount model estimates the equity risk premium by adding

  the dividend yield and the growth rate in dividends.

  C is incorrect. Cost of equity under this method is the additional of cost of debt and

  risk premium (the additional yield on a company’s stock relative to its bonds).