Calculate the required rate of return for Mudd Enterprises assuming that investors expect a 5.0% rate of inflation in the future. The real risk-free rate is 1.5%, and the market risk premium is 5.0%. Mudd has a beta of 1.5, and its realized rate of return has averaged 13.5% over the past 5 years. Round your answer to two decimal places.

r of Mudd = 14.00%

Explanation:

The required rate of return for Mudd Enterprises can be calculated using the CAPM equation. The equation is as follows,

r = rRF + Beta  *  rpM

Where,

We know the beta for Mudd and we also know the market risk premium. We will need to calculate the risk free rate.

Risk free rate =  Real risk free rate  +  expected inflation rate

Risk free rate = 1.5%  +  5%

Risk free rate = 6.5%

r of Mudd = 6.5%  +  1.5  *  5%

r of Mudd = 14.00%

income statement is prepared in order to show the profits and loss of a business. in order to prepare the income statement she should collect all the income and expenses of the product with the cost of production.