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A friend recommended that you consider purchasing stock of a specific firm because it had decent earnings over the last few years, it has a low beta (reflecting a low degree of systematic risk), and its beta is expected to remain low. You normally rely on beta as a measurement of a firm’s systematic risk. Should you seriously consider buying that stock? Explain.
What will Worldwide Widget Manufacturing have to make as a semiannual interest rate payment?
When the market is not in equilibrium, the potential for “risk-less” or arbitrage profit exists.
A stock has an expected return of 13 percent, a beta of 1.10, and the expected return on the market is 12 percent. What must the risk-free rate be?
A put option on a stock with a current price of $32 has an exercise price of $36. The price of the corresponding call option is $2.5. According to put-call parity, if the effective annual risk-free rate of interest is 5% and there are three months un..
If you are going to save $ 200,000 you have now for 15 years, your preferred portfolio mix is 50% stocks and 50% bonds. Funds invested in stocks grow by 11% a year and bonds grow by 3%. What is the internal rate of return of your portfolio? What is t..
What is the after-tax cost of preferred stock if the firm's tax rate is 31%?
Cisco, an IT company, has announced a plan to invest in a new factory, and on the same day, the company's stock price jumped up by 1%. Describe a situation where this increase of the stock price may be interpreted as indicating that investors view th..
(Present value of an ordinary annuity). What is the present value of $3500 per year for 8 years discounted back to the present at 10%?
A New Zealand company has a foreign denominated asset in United States dollars worth US$600,000 on the 1 July 2016. The US debtor is due to repay this debt to the New Zealand company over the next 12 months. Prepare the journal entries to capture the..
Gains are earned inflows that arise from a company's ongoing business activities. Accounting errors are considered accounting changes and treated accordingly.
Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm currently has four divisions, A through D, with average betas for each division of 0.8, 1.0, 1.5, and 1.7, respectively. What will the WACCs be for each div..
Try to determine the required rate of return on Tilden Woods Corporation’s common stock. The firm’s beta is 1.62. The rate on a 10-year Treasury bond is 3.56 percent, and the market risk premium is 8.17 percent.
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