Suggested Questions for Advance Assignment to Students

Suggested Questions for Advance Assignment to Students

1. Critically evaluate Mary Shiller’s analysis.
2. Critically evaluate each of the six points in Ron Emory’s memo to Mary Shiller:

1. Does looking at companies other than P&G make sense?  Why?
2. Is Mr. Emory’s method for computing yield to maturity correct?
3. Are the other cost-of-equity estimation methods as good as the CAPM?
4. Should the company computer the cost of retained earnings as part of the cost of capital?
5. Is anything lost if Ms. Shiller’s recommendation is written in terms of internal rate of return rather than NPV?
6. Since Clorox is more conservatively financed than P&G, do you expect its WACC to be greater or less than P&G’s?  Why?

1. Based on your assessment of Mr. Emory’s suggestions, what is your estimate of P&G’s cost of capital?  Carefully state all assumptions used in your analysis.
2. What is Clorox’s cost of capital?

1. Critically evaluate Mary Shiller’s analysis.
2. Critically evaluate each of the six points in Ron Emory’s memo to Mary Shiller:

1. Does looking at companies other than P&G make sense?  Why?
2. Is Mr. Emory’s method for computing yield to maturity correct?
3. Are the other cost-of-equity estimation methods as good as the CAPM?
4. Should the company computer the cost of retained earnings as part of the cost of capital?
5. Is anything lost if Ms. Shiller’s recommendation is written in terms of internal rate of return rather than NPV?
6. Since Clorox is more conservatively financed than P&G, do you expect its WACC to be greater or less than P&G’s?  Why?

1. Based on your assessment of Mr. Emory’s suggestions, what is your estimate of P&G’s cost of capital?  Carefully state all assumptions used in your analysis.
2. What is Clorox’s cost of capital?

1. Critically evaluate Mary Shiller’s analysis.
2. Critically evaluate each of the six points in Ron Emory’s memo to Mary Shiller:

1. Does looking at companies other than P&G make sense?  Why?
2. Is Mr. Emory’s method for computing yield to maturity correct?
3. Are the other cost-of-equity estimation methods as good as the CAPM?
4. Should the company computer the cost of retained earnings as part of the cost of capital?
5. Is anything lost if Ms. Shiller’s recommendation is written in terms of internal rate of return rather than NPV?
6. Since Clorox is more conservatively financed than P&G, do you expect its WACC to be greater or less than P&G’s?  Why?

1. Based on your assessment of Mr. Emory’s suggestions, what is your estimate of P&G’s cost of capital?  Carefully state all assumptions used in your analysis.
2. What is Clorox’s cost of capital?