28 Jul CIRCLE GLOBES’ STOCK HAS A BETA OF 1.09 AND A STANDARD DEVIATION
1. Circle Globes’ stock has a beta of 1.09 and a standard deviation of 9.23 percent. The market risk premium is 8 percent and the risk-free rate is 3.8 percent. What is the cost of equity? a. 8.38 percent b. 9.67 percent c. 12.52 percent d. 13.42 percent 2. The Swiss House is a maker of high-quality chocolates. The company is considering opening its own retail outlets. Management feels that retailing involves a different set of risks than its current production operations and is therefore concerned about using the company’s WACC as the required return for the project. Given this concern, View complete question » 1. Circle Globes’ stock has a beta of 1.09 and a standard deviation of 9.23 percent. The market risk premium is 8 percent and the risk-free rate is 3.8 percent. What is the cost of equity? a. 8.38 percent b. 9.67 percent c. 12.52 percent d. 13.42 percent 2. The Swiss House is a maker of high-quality chocolates. The company is considering opening its own retail outlets. Management feels that retailing involves a different set of risks than its current production operations and is therefore concerned about using the company’s WACC as the required return for the project. Given this concern, the Swiss House should: a. still use its own WACC as the project’s required rate of return b. use the pure play approach. c. use the overall market rate of return as the project’s required rate. d. use the average of its WACC and the market rate of return as the project’s required rate. 3. Global Network has a debt-equity ratio of .65. The required return on the firm’s assets is 14.3 percent and the pre-tax cost of debt is 8.1 percent. Ignore taxes. What is the firm’s cost of equity? a. 17.40 percent b. 17.68 percent c. 18.33 percent d. 19.57 percent
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