MGSC01H3 Lecture Notes - Equity Premium Puzzle, Risk-Free Interest Rate, Capital Asset Pricing Model

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ivorygiraffe272

27 Oct 2022

School

UTSC

Department

Management

Course

MGSC01H3

Professor

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Document Summary

Important formulas to remember: roe = net income / equity (assets = liability + shareholder equity) Roa = roe * leverage ( leverage = net income / net asset) Ro(i)c = (net income + interest) / (equity + debt) = roa + interest / asset. Cost of capital (kc)/wacc = equity / asset x ke (capm) + debt / asset x kd (from financial market) * cost of equity (ke)/capm = risk free rate + equity risk premium x beta (from stock market) Huge market (~bn in 2020) total addressable market - tam (can be understood as reducing rivalry) Resistant to downturns (risk hedge) risk (can be understood as more opportunity for. Grocery is not likely to moved online substitutes: the bad. Low growth market (2% annual growth last decade) rivalry. Very competitive (big players, perishable goods) rivalry. Suppliers are concentrated the company is making most of its purchases from a few key suppliers.

Related Questions

Which of the following statements is true of a corporation?

a)Shareholders are authorized to sign contracts or make business commitments on behalf of the corporation.

b)Shares of stock cannot be readily bought and sold by investors on the open market.

c)The liabilities of the corporation can be paid by the personal assets of the shareholders.

d)Corporations pay income tax on corporate earnings, and shareholders pay personal income tax on corporate dividends and gains from the sale of stock.

viridiankoala364

You are an employee of University Consultants, Limited, and have been given the following assignment. You are to present an investment analysis of a small retail income-producing property for sale to a potential investor. The asking price for the property is $1,420,000; rents are estimated at $181,760 during the first year and are expected to grow at 2.5 percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A fully amortizing 70 percent loan can be obtained at 6 percent interest for 30 years (total annual payments will be monthly payments × 12). The property is expected to appreciate in value at 2 percent per year and is expected to be owned for five years and then sold.

Required:

a. What is the first-year debt coverage ratio?

b. What is the terminal capitalization rate?

c. What is the investor’s expected before-tax internal rate of return on equity invested (BTIRR)?

d. What is the NPV using a 14 percent discount rate?

e. What is the profitability index using a 14 percent discount rate?

sanjana12345

Economists, statisticians, and business analysts are interested in the "unemployment rate” because this number indicates an economic system's ability to effectively and productively use an important factor of production. However, many people believe that a government's "official unemployment rate understates a country's ability to find jobs for its people. One of the two reasons highlighted during the lecture was: a) b) c) d) the seasonality effect the cyclicality effect the discouraged worker effect the retirement effect

MGSC01H3 Lecture Notes - Equity Premium Puzzle, Risk-Free Interest Rate, Capital Asset Pricing Model

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