Required Return Using the information in the table,compute the required return for each company using both CAPM and the constant growth model.Compare and discuss the results.Assume that the market portfolio will earn 11 percent and the risk-free rate is 2.5 percent.
Definitions:
Capital Components
The various sources of funding that a company uses to finance its operations and growth, including debt and equity.
Capital Structure
The mix of the three capital components (debt, preferred stock, and equity) used by a firm. The optimal capital structure is the structure at which stock price is maximized, all other things held equal. Also see Target capital structure.
Equity
The value of an ownership interest in property, including shareholders' equity in a company.
Tax Deductible
Expenses that can be subtracted from gross income, lowering the taxable income and thus the amount of tax owed.
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