WMT Equity
The beta for Wal-Mart, according to MSN Moneycentral, is 0.29. According to Yahoo! Finance the yield to maturity on a Treasury bond that is due 15-Mar-12 is 0.296%. We will assume a market risk premium of 7%. With these figures, the cost of equity for Wal-Mart can be calculated using the capital asset pricing model (CAPM):
Ra = RF + ? (Rm -- Rf)
Ra = 0.296 + (.29)(7)
Ra = 2.326%
This cost of equity is lower than I had expected. In general, the cost of equity for a firm is fairly high. The reason why Wal-Mart has such a low cost of equity is that the company's beta is so low. Wal-Mart has very little correlation with the broad market, and is not very volatile. As a result, Wal-Mart's cost of equity is low, because it is much less risky than the market...
MSN Moneycentral (2011), the beta for Wal-Mart (WMT) is 0.33. This indicates that the company has a very low degree of correlation with the broader market, and is a less volatile investment than the broad market. According to Yahoo! Finance (2011), the rate of return on a one-year U.S. Treasury bond is 0.318%. It is assumed that the market risk premium is 7%. This assumption means that the market rate
Investopedia, a noteworthy financial website designed by Forbes Media and aiming to sustain investing decisions, defines the cost of equity as "the return that stockholders require for a company […]. A firm's cost of equity represents the compensation that the market demands in exchange for owning the asset and bearing the risk of ownership." The CAPM equitation: ra = rf + ?a x (rm - rf) (Investopedia) In our scenario, the risk
Economy (Market) Analysis Industry Analysis Company Analysis Brief History of the Company Analysis of Financial Statements (Ratio analysis) Liquidity Ratios: Current ratio Operating Efficiency: Asset Turnover Operating Profitability Ratios: Net profit margin, Return on Equity, and Du Pont Risk Analysis: Business Risk and Financial Risk, Variability, and Debt/Equity Application of CAPM and Analysis 10F.Estimating the Value of the Company and Analysis EPS 10• P/E 11• Sustainable Growth Rate 11• PEG 12• Investment Decisions 13G.Additional Measures of Relative Value and Analysis 13• P/BV 14• P/CF 14H.Measures of Value Added
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