l****q
发帖数: 767 | 1 Hi friends,
I have a question about capital asset pricing model equation. It's an
example on page B3- 87 of Becker CPA BEC (2007 edition). The example is:
"Assume that the Carlin Company wants to compute its cost of equity capital
using the CAPM formula and that the Treasury Bill rate is 7%, the market
rate is 16%, and the beta of Jasmine Corporation, which is considered to be
comparable to Carlin, is 1.2. What is the cost of equity capital for Carlin?
C= 7%+(16%-7%) X 1.2=17.8%
Therefore, a | n*****1
发帖数: 172 | 2 I think what the statement means is: since it was talking about and
calculating cost of EQUITY capital, the
17.8% rate of return only applies to situations where there is no debt, that
is, 100% equity; otherwise, it is like
comparing apples to oranges. Therefore, in this case, when making an
investment decision, we first have to
make sure that it is a 100% equity investment (so that our comparison makes
sense), and then compare the
return with 17.8%.
capital
be
Carlin?
【在 l****q 的大作中提到】
: Hi friends,
: I have a question about capital asset pricing model equation. It's an
: example on page B3- 87 of Becker CPA BEC (2007 edition). The example is:
: "Assume that the Carlin Company wants to compute its cost of equity capital
: using the CAPM formula and that the Treasury Bill rate is 7%, the market
: rate is 16%, and the beta of Jasmine Corporation, which is considered to be
: comparable to Carlin, is 1.2. What is the cost of equity capital for Carlin?
: C= 7%+(16%-7%) X 1.2=17.8%
: Therefore, a
| l****q
发帖数: 767 | 3 Make sense! Thank you very much!!! | l****q
发帖数: 767 | 4 So, does CAPM also apply to investments other than pure equity investments,
and investments involving more than one typle of investment? |
|
