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Mr. & Mrs Shaw invest 60% of funds in stock A and the balance in stock B. The standard deviation of returns for stock A is 10% and on B it is 20%. Calculate the variance of portfolio returns and standard deviation assuming the correlation between the returns is 1.0; assume the correlation is .5. Explain the different results between the two correlations, and which correlation has more risk?
The Carver Paper Company has decided to acquire a $300,000 pulp quality control Machine that has a useful life of 10 years. A salvage value of $50,000 is expected at the end of year 10. The machine would be depreciable on the straight line basis with..
SI Inc. is considering investing in a new product named Z90. There is a 50% chance that the product will be a success, which then generates $110,000 cash inflow each year for the next 5 years. There is a 50% chance that the product will fail, which t..
Selection of a source of short-term financing should include all of the following EXCEPT a. The effect of the use of credit from a particular sorce on the cost and availability of other sources of credit b. The flotation costs of debentures c. The ef..
The corporate cost of capital provides a benchmark for determining a project's cost of capital. In general, projects that are riskier than average must have a cost of capital that is higher than the corporate cost of capital, while projects that are ..
Beta Industries has net income of $1,300,000, and it has 330,000 shares of common stock outstanding. The company's stock currently trades at $44 a share. Beta is considering a plan in which it will use available cash to repurchase 30% of its shares i..
Keira Mfg. is considering a rights offer. The company has determined that the ex-rights price would be $63. The current price is $75 per share, and there are 25 million shares outstanding. The rights offer would raise a total of $50 million. What is ..
Drogo, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 12 years to maturity that is quoted at 105 percent of face value. What is the company’s pretax cost of debt? If the tax rate is 35 percent, what is the a..
Yan Yan Corp. has a $2,000 par value bond outstanding with a coupon rate of 5.1 percent paid semiannually and 29 years to maturity. The yield to maturity on this bond is 4.2 percent. What is the price of the bond?
AndyCoi Inc has the following balance sheet and an equity of market to book ratio of 1.5 assuming the market value of debt equals its book value, what weights should it use for WACC calculation?
PDQ Corporation is forecast to have total earnings of $1 billion next year and to pay out a total of 25% of these earnings to shareholders in the form of share repurchases and dividends. PDQ Corporation has 100 million shares outstanding. Its earning..
Scanlin, Inc., is considering a project that will result in initial aftertax cash savings of $1.86 million at the end of the first year, and these savings will grow at a rate of 2 percent per year indefinitely. What is the maximum initial cost the co..
Your firm is contemplating the purchase of a new $600,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $64,000 at the end of that time. You will save $230,000 before..
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