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Asset A has a reward to risk ratio of .075 and a beta of 1.5. The risk-free rate is 5%. What is the expected return on A? [reward to risk ratio = (expected return on A - risk-free rate)/beta]
General Forge and Foundry Co. is considering investing in a project in which the risk is greater than the firms current risk based on any method for assessing risk. Which of the following should management do when evaluating this project?
A five-year project has an initial fixed asset investment of $335,000, an initial NWC investment of $35,000, and an annual OCF of −$34,000. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required re..
Eisenhower Communications is trying to estimate the first-year net operating cash flow (at Year 1) for a proposed project. The financial staff has collected the following information on the project: What is the project's operating cash flow for the f..
Three call options on a stock have the same expiration date and strike prices of $20, $25, and $30. The market prices are $8, $4, and $1, respectively. Explain how a butterfly spread can be created. Construct a table showing the profit from the strat..
When you compound an initial lump sum annually instead of monthly at the same nominal interest rate over the same three year period, what will happen to the future value? Same question in other words: what happens to the future value if you compound ..
The final task in this section requires you to make an investment decision based on the theoretical value of a firm. The company you will consider investing in is Woodside Petroleum (WPL). You should assume that the equity market risk premium is 5%, ..
What are its intrinsic values at stock prices of $45 and $38, respectively, and what should be the hedge ratio and what should be the value of the hedged portfolio at expiration
A local dental practice decides to run a Group on campaign. The campaign offered $345 worth of dental services (such as teeth whitening) for $150. For the total campaign, 250 coupons were sold. We estimate that 85% of the coupons will be redeemed, th..
A firm plans to split its stock 2-for-1. Which of the following most likely will NOT occur?
A compay is expected to have earnings of $1.52 per share in one year, $1.81 per share in two years, and $2.45 per share in three years. The dividend payout ratio is also expected to remain at 30% over the next three years. The leading P/E ratio is ex..
Swimkids is a swimsuit manufacturer. They sell swim suits at a selling price is $30 per unit. Swimkids variable costs are $18 per unit. Fixed costs are $71,100. Swimkids expects sales of $288,700 next year. What is Swimkids's margin of safety?
If an investment is producing a return that is equal to the required return, the investment's net present value will be:
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