(a) How would you use Capital Asset Pricing Model to identify undervalued and overvalued shares?
(b) Wealth Bank stock β is 0.80 and market return is 10%. If the government bond rate is 4% what is the expected return from an investment in Wealth Bank?
(c) What are the assumptions of weighted average cost of capital (WACC) calculations?
(d) Sigma Corporations capital structure is $60 million equity at a cost of 8% and $40 million debt at a cost of 6%. What is Sigma’s WACC?