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Stock Y has a beta of 1.20 and an expected return of 12.7 percent. Stock Z has a beta of .90 and an expected return of 11.1 percent. If the risk-free rate is 4.5 percent and the market risk premium is 7.1, are these stocks correctly priced?
How do we calculate the payback period for a proposed capital budgeting project? What are the main criticisms of the payback method?
What are the NAL and IRR of the lease and interpret each value - Assume now that the salvage value estimate is $300,000, but all other facts remain the same. What is the new NAL? The new IRR?
Reactive Industries has the following capital structure. Its corporate tax rate is 30%. Security Market Value Required Rate of Return Debt $10 million 6% Preferred stock 30 million 8 Common stock 60 million 12 What is its WACC? (Do not round intermed..
You hold a portfolio consisting of a $5,000 investment in each of 20 different stocks. The portfolio beta is equal to 0.87. You have decided to sell a coal mining stock (b = 1.00) at $5,000 net and use the proceeds to buy a like amount of a mineral r..
The Absolute Zero Co. just issued a dividend of $2.95 per share on its common stock. The company is expected to maintain a constant 6.1 percent growth rate in its dividends indefinitely. If the stock sells for $59 a share, what is the company’s cost ..
What is the beta of a portfolio whose expected return is 10% when the risk-free rate is 3% and the market risk premium is 5%? What is the expected return on the market?
Supposed that you represent the shareholder board of Apple Inc. and decide to elicit high CEO effort to help the company: What will be your incentive contract plan (e.g. bonus, stock option…etc.)?
If the standard deviation of Euro percentage changes is 10% annualized, what is the appropriate standard deviation to use for assessing the risk on a 1-month investment? Next, assuming an expected percentage appreciation for Euro of 3% per year (0.25..
Dundee Company has a total value of $74 million. Its stock sells at $32 a share. At present, it has a loan of $10 million at 8% interest. It needs $3 million in additional capital. The expected EBIT after the new financing is $6 million, with a stand..
You plan to buy a new car. The price is $30,000 and you will make a down payment of $4,000. Your annual interest rate is 10% and you intend to pay for the car over five years. What will be your monthly payment?
Examine the tombstone announcing the issue of State of Hawaii general obligation bonds (page 5). All of these bonds are being issued in 1983. However, their maturities vary from 3 years to 20 years. All bonds pay interest semi-annually. What is the y..
Explain the difference between sensitivity analysis and scenario analysis. Offer and argument for the proposition that scenario analysis offers a more realistic picture of a project’s risk than does sensitivity analysis
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