In: Finance
Kimberly-Clark Corporation, together with its subsidiaries, manufactures and markets personal care and consumer tissue products worldwide. It operates through three segments: Personal Care, Consumer Tissue, and K-C Professional. Assume you are the CFO and you have been asked to calculate the stock’s beta. Assume that Kimberly-Clark has an expected return of 19 percent. Also, assume that the risk-free rate is 5 percent and the market risk premium is 10 percent.
Required: Calculate the beta for Kimberly-Clark’s stock.
As per the Capital Asset Pricing Model,
Expected return= risk free rate + beta*(market rate of return- risk free rate)
So, beta = (expected return - risk free rate)/ (market rate of return- risk free rate)
Now, market risk premium= (market rate of return- risk free rate)
Therefore, beta = (19-5)/(10) = 1.4