jjmage2206
31.03.2020 •
Business
Analysts estimate the cost of debt capital for Abbott Laboratories (NYSE: ABT) is 3.0% and that its cost of equity capital is 5.0%. Assume that ABT's statutory tax rate is 37%, the risk-free rate is 2.5%, the market risk premium is 5.0%, the ABT market price is $65.60 per common share, and its dividends are $0.88 per common share. (a) Compute ABT's average pretax borrowing rate and its market beta. (Round your answers to one decimal place.) Average borrowing rate = Answer 1.3 % Market beta =
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Ответ:
4.76% and 0.5
Explanation:
The computation is shown below:
Average borrowing rate is
= Cost of debt capital ÷ (1 - tax rate)
= 3% ÷ (1 - 0.37)
= 4.76%
And, the market beta is
Cost of equity = Risk free rate of return + Beta × (Market risk premium - risk free rate of return)
5% = 2.5% + Beta × 5%
So, the beta is 0.5
The (Market risk premium - risk free rate of return) is also known as market risk premium
Ответ: