Calculate the expected rate of return on investments

Assignment Help Finance Basics
Reference no: EM13235385

Rate of return Douglas Keel, a financial analyst for Orange Industries, wishes to estimate the rate of return for two similar-risk investments, X and Y. Douglas’s research indicates that the immediate past returns will serve as reasonable estimates of future returns. A year earlier, investment X had a market value of $20,000; investment Y had a market value of $55,000. During the year, investment X generated cash flow of $1,500 and investment Y generated cash flow of $6,800. The current market values of investments X and Y are $21,000 and $55,000, respectively.

a. Calculate the expected rate of return on investments X and Y using the most recent year’s data.

b. Assuming that the two investments are equally risky, which one should Douglas recommend? Why?

Reference no: EM13235385

Calculate expected abnormal price-earnings ratio for stock

Depreciation is expected to be $12 million for the remaining life of the assets, which have a salvage value of $78 million. Magic's nominal cost of capital is 12%. Estimate

What is the market value of the firm prior to the recap

An all-equity business has 100 million shares outstanding selling for $20 a share. Management believes that interest rates are unreasonably low and decides to execute a divi

What is the bonds current yield

A bond that matures in 10 years sells for $1,190. The bond has a face value of $1,000 and a yield to maturity of 9.7489%. The bond pays coupons semiannually. What is the bon

Interpret a cash budget for the months

The firm has a cash balance of $5,000 on May 1 and wishes to maintain a minimum cash balance of $5,000. Given the following data, prepare and interpret a cash budget for the

Summary of company proposal

Prepare a final presentation of your company proposal. This will be a brief summary of your company proposal, which summarizes the writing assignments you have completed. Us

Expected return or the cost of equity capital

Wynners Bhd. is expected to pay a dividend of RM2 per share at the end of year 1(D1) and the dividends are expected to grow at a constant rate of 4% forever. If the current

Distinguish between adverse selection

1. Why does the Fed use open market operations to a greater extent than reserve requirements in its conduct of monetary policy? 2. Distinguish between adverse selection and m

How much gain (or loss) resulted from the sale

A person owned 400 shares of XYZ common stock which cost $20,000. XYZ then had a 2-for-1 stock split. After the split, the person sold 100 shares for $10,000. How much gain

Reviews

Write a Review

 
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd