Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. the standard deviation of returns on carlson compa

The standard deviation of returns on Carlson companys common stock is 37%, and Carlsons beta...

50.1K

Verified Solution

Question

Finance

The standard deviation of returns on Carlson companys common stock is 37%, and Carlsons beta coefficient is 0.9. Currently, yields on Treasury Bills are 5.5%, while the average yield on Treasury Bills over the past seventy years has been 3.7%. The standard deviation of market returns is 22%. The return on the overall market last year was 10.2%, while the average market return over the past seventy years has been 12.2%.

(a) Provide an estimate of the expected return on Carlson common stock, and explain the reasoning behind the estimate.

(b) Carlson has 2.2 million shares of common stock outstanding. The common stock has a book value of $9 per share, and sells in the market for $12 per share. Carlson also has debt with a face value of $18 million outstanding. The debt pays coupon interest rate of 9.5%, but sells in the market for 110% of its face value, and has a yield-to-maturity of 8.8%. Carlsons corporate income tax rate is 35%. Compute Carlsons weighted average cost of capital (WACC).

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students