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The common shares of Almond Beach Ltd., have a beta of 0.75, offer an expected return of 9%, and have an historical standard deviation of return of 17%, alternatively, the common shares of Palm Beach Inc. have a beta of 1.25, offer an expected return of 10%, and have an historical standard deviation of return of 13%. Both firms have a marginal tax rate of 37%. The risk-free rate of return is 3% and the expected rate of return on the market portfolio is 9½%.
a. Would a well-diversified investor prefer to invest in the shares of Almond Beach or the shares of Palm Beach? Explain why and show all calculations.
b. Would an investor who can invest in the shares of only one firm prefer to invest in the shares of Almond Beach or the shares of Palm Beach? Explain why.
Suppose that firm's recent earnings per share and dividend per share are $2.90 and $2.10, respectively. Both are expected to grow at 8 percent. However, the firm's current P/E ratio of 22 seems high for this growth rate. the P/E ratio is expected to ..
Ten years ago T-Bone Company purchased a drill for $250,000. It was being depreciated on a straight line basis to an estimated $25,000 salvage value over a 15 year period. The firm is considering selling the old drill and purchasing a new one that wo..
Suppose ACE Corporation sold a bond with 12-year maturity, $1,000 par value, and 8.5% coupon rate (semi-annual payment). a). Three years after the bonds were sold, the yield to maturity drops to 6%. How much would ACE bonds be selling for? b). Suppos..
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If you owned your own company and wanted to expand, would you choose to get your financing through debt, equity, or both? Why? What advantages or disadvantages do each offer?
Why do you suppose that well-known companies such as Apple and Facebook prefer to have their shares traded on the NASDAQ rather than on one of the major listed exchanges, such as the NYSE (for which they'd easily meet all listing requirements)? What'..
Based on daily data over the last five weeks, which are reported in Table, forecast the number of vans for the one-week-ahead deliveries.
One of the common disadvantages of the discounted payback decision rule is that I may cause:
Don Chather bought a new Dell computer for $1,650. This included a 5% sales tax. What is the amount of sales tax and the selling price before the tax?
Pelzer Printing Inc. has bonds outstanding with 24 years left to maturity. The bonds have an 12% annual coupon rate and were issued 1 year ago at their par value of $1,000. For the coming year, what is the expected current yield?
You borrow $200,000 to buy a house. The mortgage interest rate is 4.5 percent and the loan period is 30 years. Payments are mademonthly. What is your monthly mortgage payment?
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