Posted: August 9th, 2016

Explain why and give an example to support your answer?

Listed below is financial information for Bulls, Inc.
Total Assets $38,673
Book value of debt $11,258
Average borrowing cost 10%
Common Equity:
Book Value $21,489
Market Value $42,698
Marginal Income Tax Rate 37%
Market Equity Beta 1.1
Risk-free Rate 4.5%
Market Premium 6.5%

a. Given Bulls, Inc. market beta, how did the company’s stock returns compare to the market return?

b. Calculate the company’s cost of equity capital using the CAPM model.

c. Calculate weighted-average cost of capital.

Is it a good idea to rate the performance of managers based solely on the DCF model?

Explain why and give an example to support your answer.


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