Suppose it's January 2021 and you would like to estimate the unlevered cost of capital (r) for Atlas Corp. The current share price of Atlas is $10 and there are 16 million shares outstanding. You have estimated Atlas' equity beta as 0.85, and its cost of debt (r) as 3.75%. The risk-free rate is 2.5% and the market risk prer 7%. In addtion, the table below shows the current balance sheet of the firm. Assume that all cash and short-term investments are excess cash. Based on the info provided, what is the best estimate the unlevered cost of capital for Atlas Corp? Select one. Assets Cash & Short-Term Investments Accounts Receivable Inventory Other Current Assets Total Current Assets Property, Plant & Equipment Less Accumulated Depreciation Net Property, Plant & Equipment Goodwill & Intangible Assets Other Long-Term Assets Total Assets O 1.8.45% O 2.6.23% O 3.7.37% O 4.5.73% O 5.7.51% Balance Sheet (in $-millions) 2020 Liabilities $10.00 Accounts Payable $30.00 Short-Term Debt $15.00 Current Maturities of Long-Term Debt $4.00 Other Current Liabilities $59.00 Total Current Liabilities $150.00 Long-Term Debt ($40.00) Capital Lease Obligations $110.00 Total Debt $18.00 Deferred Taxes $23.00 Other Long-Term Liabilities 2020 $10.00 $5.00 $15.00 $9.00 $39.00 $50.00 $0.00 $50.00 ($12.00) $22.00 Total Liabilities $99.00 Shareholders' Equity $111.00 $210.00 Total Liabilities and Shareholders' Equity $210.00
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
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