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Suppose a market expected return of 10% and a riskless rate of 6%. Assume the CAPM. A) Assume both borrowing and lending are possible at the riskless rate. Show how an investor can achieve a portfolio with 1.0 beta by i. only taking positions in a riskless security and a portfolio with beta 0.8; ii. only taking positions in a riskless security and a portfolio with beta 1.5.
Edison Electric Systems is considering a project that has the following cash flow data. What is the project's MIRR if its WACC = 10%?
Assume that a company's dividends per share are projected to remain at 1.10 in perpetuity, and that its per share stock price is $22. Estimate the company's cost of equity capital.
The preferred stock of Gator Industries sells for $34.63 and pays $2.77 per year in dividends. What is the cost of preferred stock financing? What are the flotation costs for issuing the preferred share and how should this cost be incorporated into t..
Lycan, Inc., has 7.6 percent coupon bonds on the market that have 9 years left to maturity. The bonds make annual payments and have a par value of $1,000. If the YTM on these bonds is 9.6 percent, what is the current bond price?
The Unlimited, a national retailing chain, is considering an investment in one of two mutually exclusive projects. The discount rate used for Project A is 12 percent. Further, Project A costs $15,000, and it would be depreciated using MACRS. It is ex..
The value of a warrant to buy a safe, stable stock should exceed the value of a warrant to buy a risky, volatile stock, other things held constant. Warrants can sometimes be detached and traded separately from the debt with which they were issued, bu..
Recommend a strategy for financial administrators to balance the tension between having inventory on hand when it is needed versus carry cost to organization.
One year ago, the Jenkins Family Fun Center deposited $3,500 in an investment account for the purpose of buying new equipment four years from today. Today, they are adding another $5,300 to this account. They plan on making a final deposit of $7,500 ..
You find a certain stock that had returns of 15.4 percent, –22.7 percent, 28.7 percent, and 19.7 percent for four of the last five years. Assume the average return of the stock over this period was 13.40 percent. What is the standard deviation of the..
What is the interest rate John would earn on this investment?
Assume you are a fund manager at a large mutual fund, handling the retirement savings of your clients. Based on the risk preferences of your clients, you require that all stocks held must have a Sharpe Ratio of at least 1.5. what is the minimum accep..
At year-end 2016, Wallace Landscaping’s total assets were $1.0 million and its accounts payable were $340,000. Sales, which in 2016 were $2.2 million, are expected to increase by 30% in 2017. Total assets and accounts payable are proportional to sale..
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