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A mutual fund manager has a $40 million portfolio with a beta of 1.00. The risk-free rate is 4.25%, and the market risk premium is 6.00%. The manager expects to receive an additional $60 million which she plans to invest in additional stocks. After investing the additional funds, she wants the fund's required and expected return to be 13.00%. What must the average beta of the new stocks be to achieve the target required rate of return?
The efficient market hypothesis has several forms. The weak form states that
Default Risk Premium A company's 5-year bonds are yielding 9.85% per year. Treasury bonds with the same maturity are yielding 5.7% per year, and the real risk-free rate (r*) is 2.35%. The average inflation premium is 2.95%, and the maturity risk prem..
Western Hydra Systems makes a panel milling machine with a 2.7-m-diameter milling head that emits low vibration and processes stress-relieved aluminium panels measuring up to 6000 mm long. The company wants to borrow money for a new production/wareho..
Describe the organizational structure of hedge funds, VC funds, and private equity finds. How are the incentives of managers of these funds aligned with the goals of the (other) investors?
Leisure Lodge Corporation is expected to pay the following dividends over the next four years: $21, $15, $5.8 and $3. Afterwards, the company pledges to maintain a constant 3 percent growth rate in dividends forever. If the required return on the sto..
Defense Dynamics is considering a project that will have fixed costs of $12,000,000. Its sale price will be $37.50 per unit, and it will have a variable cost per unit of $11.25. When other things are held constant, the higher a firm's operating lever..
Great Seneca Inc. sells $100 million worth of 20-year to maturity 13.12% annual coupon bonds. The net proceeds (proceeds after flotation costs) are $981 for each $1,000 bond. The firm's marginal tax rate is 40%. What is the after-tax cost of capital ..
A company's 7% coupon rate, semiannual payment, $1,000 par value bond that matures in 20 years sells at a price of $565.86. The company's federal-plus-state tax rate is 30%. What is the firm's after-tax component cost of debt for purposes of calculat..
You have your choice of two investment accounts. Investment A is a 7-year annuity that features end-of-month $2,000 payments and has an interest rate of 6 percent compounded monthly. Investment B is an annually compounded lump-sum investment with an ..
A company reports the following financial information: Inventory $197; Accounts Receivable $275; Cash $84; Prepaid expenses $398; credit sales $1,905. How long does it take to collect its credit sales?
Millbridge Hospital receives earned income from several sources: Medicare, Medicaid, private insurance, and selfpay customers. The federal government owes the hospital $7 million, 60% is current, 30% is between 31 and 61 days old, and the remaining 1..
You opened a savings account at a bank and made an initial deposit. The account pays 8% interest compounded annually. You made no additional deposits and in exactly one year you close the account and take out off of the money. The balance at the time..
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