Finance Discussion Questions

Q1: Calculate market risk premium and the cost of equity of firm by using CAPM method if firm’s beta is 1.25, current yield of treasury bills is 5 %, and expected return on a market portfolio is 12 %.


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Q2: Calculate Weighted Average Cost of Capital (WACC) if tax rate for a firm is 30 and firm’s capital mix consist of $150 million debt @ 7 % return and $500 million equity requiring a 12% return.

Q3: calculate the value of a firm if its weighted average cost of capital is 13.5% while its free cash flows are $2 million each year for the first 4 years and $2.10 million for 5th year and 5% growth after 4 years.


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