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Chapter 7 Questions

Chapter 7 Questions

Question 6

Question 6 
a class A stock Class A share price Class B stock Class B share price Value of Equity
50,000 100 100,000 90 14000000
b Value of debt Value of equity Debt ratio
5,000,000 14,000,000 0.263157895

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Question 11

Question 11
Expected Market Return by using SML of CAPM = Risk-Free Rate + Market Risk Premium (Beta)
Risk-free rate Riskless Rate Beta Expected Market Return
7% 6.50% 1.1 14.1500%
Expected return = risk-free rate + market risk premium (beta) + expected value of size factor(coefficient for size effect) + book-to-market factor (coefficient for book-to-market effect)
Risk-Free Rate Riskless rate Beta Expected value size factor The coefficient for the size effect Book to market Factor The coefficient for book market effect
7% 6.50% 1.1 5% 0.7 4% -0.3 16.45%

Question 12

Question 12 
Outstanding shares Share Price Value of shares at offering Price
50,000,000  $                       22.00  $   1,100,000,000.00
Outstanding shares Stock market price Value of shares at market price
50,000,000  $                       40.00  $   2,000,000,000.00
Value of shares at market price Value of shares at offering Price
$2,000,000,000.00 $1,100,000,000.00 $900,000,000.00

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References

Damodaran, A. (2010). Applied corporate finance. John Wiley & Sons.

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Question 


Week 6 Chapter 7 Questions

Select three formula-driven problems from Chapter 7 that you wish to showcase and prepare a Microsoft Excel document showing the Excel formulas used to prepare the solution for those problems.

Chapter 7 Questions

Chapter 7 Questions

REMINDER: Part of the grade you receive on your problems is the utilization of Formulas. Therefore, do not pick issues that only require a narrative!

Textbook:

Damodaran, A. (2010). Applied corporate finance. John Wiley & Sons.

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