Corporate Finance for Car Industry -MyAssignmenthelp.com

Question: Discuss about theCorporate Finance for Car Industry. Answer: Introduction The market risk premium is the variance amid anticipated yield on the market platform and the free rate (RFR). The MRP is determind through (Benth, et al. (2008) Expected Market return RFR= MRP A for BMW the best market risk premium to implement is the implied equity market risk premium methodology; this is because the approached deals with current issues. Which is the case in the car industry where the past, outcomes dont determine the current or future results because of the frequent changes in its market. On the other hand, BMW is an established company and investors expect yields on a higher scale. That why the Implied equity market risk premium approach would fit in as its considerations are more of real current facts and not more on the assumption (Treynor, (1961). An Example of an MRP that BMW has Posted The German based car company BMW uses the BETA as a Market risk premium. Beta is also known as beta coefficient; it calculates the expected returns of an asset which is used for capital asset pricing model (CAPM). It measures the relative risk from the changing market, as it shows the volatility level of how far the funds will fall in the market, and to which point the funds will rise if the market levels climb. For example, beta states that if the securitys price is below 1, it means that the price is less volatile than the market. Where else if it is greater than one then the security price is much higher than the market. This gives a consolidated conclusion as to what level of prices will underperform or outperform in the market (Blume, (1971) Reference Blume, M. E. (1971). On the assessment of risk. The Journal of Finance, 26(1), 1-10. Benth, F. E., Cartea, ., Kiesel, R. (2008). Pricing forward contracts in power markets by the certainty equivalence principle: explaining the sign of the market risk premium. Journal of Banking Finance, 32(10), 2006-2021. Treynor, J. L. (1961). Toward a theory of market value of risky assets. Unpublished manuscript, 6.