Ford Date: 2/13/13 Subject: Nike’s Cost of Capital I agree with Ms. Ford’s estimate of Nike’s Cost of Capital at 8.4% The WACC is the appropriate method for valuing Nike’s capital. The WACC takes your cost of debt x the percent of capital + CAPM x equity percent of capital and it tells the rate of return the company needs to return based on its capital structure. In my opinion Ms. Ford has correctly assumed Nikes cost of debt and cost of equity. Her projection for cost of debt uses the Japanese
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Chapter 8 Risk and Return: Capital Market Theory 8-1. To find the expected return from James Fromholtz’s investment opportunity‚ we will use equation 7-3: where i indexes the various states of nature that are possible. We can picture the states of nature for James’s opportunity as: Despite the symmetrical appearance of the graph‚ the outcomes are not symmetrical: There are many more outcomes that are positive than negative. Only the 100% return (probability 5%) is negative; 95% of the weight
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Examination Information This is a three hour closed book written examination‚ worth 70% towards your final grade. The examination will contain 6 questions‚ covering computational and discursive aspects of the syllabus. You will be required to answer a compulsory question of 40 marks in section A and 3 questions from 5 optional questions in section B. Question in section B are worth 20 marks each. Note that a greater depth of knowledge than in the in-class test will be required to gain reasonable
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viewpoint of investors. Explain your reasoning a. A large fire severely damages three major U.S. cities. b. A substantial unexpected rise in the price of oil. c. A major lawsuit is filed against one large publicly traded corporation. 2. Use the CAPM to answer the following questions: a. Find the Expected Rate of Return on the Market Portfolio given that the Expected Rate of Return on Asset "i" is 10%‚ the Risk-Free Rate is 3%‚ and the Beta (b) for Asset "i" is 1.5. b. Find the Risk-Free Rate
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the future and the return each was likely to experience in different situations. PART #2 METHODOLOGIES 1) Beta= [ Cov(r‚ Km) ] / [ StdDev(Km) ]2 R= is the return rate of the investment Km = is the return rate of the asset class 2) CAPM= ra = rf + Betaa(rm - rf) Ra= is the asset price Rf = is the risk-free rate of return Beta= is the risk premium Rm =is the market rate of return 3) Rate of Return 4) 5) PART #3 SOLUTIONS 1) Beta of Stock A= 1.315 Beta of
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P8-17 Total‚ Nondiversifiable and Diversifiable Risk c) Because Diversifiable risk can be eliminated through portfolio diversification‚ the more relevant risk is the Nondiversifiable risk. This kind of risk can be attributed to market forces and factors that affect ALL the firms and cannot be eliminated through portfolio diversification. In this case‚ the nondiversifiable risk is about 6.00%. Notice that the area between the red curve and the green line (which represents the diversifiable risk)
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INTRODUCTION: A portfolio manager at North Point Large cap Fund‚ Kimi Ford‚ considers buying shares of Nike‚ Inc. for her mutual fund management firm. In the mid of 2001‚ Nike arranges for an analyst meeting to disclose its Fiscal year results and also to discuss on renewing its strategies to boost its sales growth‚ profits and market share which were all declining. To cope from the situation it decides to develop athletic shoes in the mid-price segment‚ enhance revenues from its apparel line
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Portfolio Performance evaluation & Analysis Portfolio Management(F-407) Submitted to: Pallabi Siddiqua Assistant Professor Department of Finance Faculty of Business Studies University of Dhaka Submitted by: Gazi Afsana Roll: 15-252 4th year 2nd Semester Department of Finance Faculty of Business Studies University of Dhaka Date of submission: January 13‚ 2013. Letter of transmittal Date Mrs. Pollobi siddiqua Lecturer‚ Department Of Finance‚ University
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INTRODUCTION * Wrigley has a one sided capital structure * Their interest rates has been at their lowest in 50 years * However‚ they have the leading market share in a stale low technology business * Blanka Dobrynin‚ the managing partner of Aurora Borealis LLC (a company who used a hedge fund to invest in companies who are in distress‚ merger arbitrage‚ change-of-control transactions‚ and recapitalization) wanted to investigate a potential investment of $3B in Wrigley * Wrigley
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CHAPTER 6 RISK‚ RETURN‚ AND THE CAPITAL ASSET PRICING MODEL True/False Easy: | |(6.2) Payoff matrix |Answer: a |EASY | |[i]. |A payoff matrix shows the set of possible rates of return on an investment‚ along with their probabilities of occurrence‚ and the | | |investment’s expected rate of return as found by multiplying each outcome or "state" by its probability.
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