61 Questions for Extra Credit Points. Due 12/16 (Wednesday) (Please show your work and provide your explanation) You need to show your work and explanations. Jotting down only the answers is not acceptable. If you do all 100 questions‚ you will get up to 3 extra points added to your final total score (after I determine your total score based on mid-terms‚ HWs‚ and the final). Chapter 5 1. You plan to analyze the value of a potential investment by calculating the sum of the present values
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000/55‚000= .3636 w2= 35‚000/55‚000= .6364 portfolio bet= .3636*.7 + .6364*1.3 = 1.082 Required rate of return AA industries = risk free rate + market risk premium*beta AA industries ri = rRF + (rM - rRF)b 4% + (12%-4%)*.8 = 10.4% required return= risk free rate+ market risk premium*beta ri = rRF + RPM* b Market- required return= 5%+7%= 12% Beta of 1- required return= 5%+ 7%*1= 12% Beta of 1.7- required return= 5%+ 7%*1.7 = 16.9% = P1r1+P2r2+P3r3+ etc. = (0.1)(-50%) + (0.2)(-5%)
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3. Answers: Stock A: $100‚000 x 0.75 = $75‚000 Stock B: $37.500 x 1.42 = $53‚250 Sum = $75‚000 + $53‚250 = $128‚250 His portfolio’s beta = = 0.934 4. Answers: a) Estimated beta of stock XYZ: = = 1.5 b) Required return on stock XYZ: RXYZ = RRF + (RM – RRF) x XYZ = 6% + (12% - 6%) x 1.5 = 15% 5. Answers: . Part 1: 1. Explain what is meant by the stock’s “Expected Return” 2. Coefficient of variation of stock A = = 0.5 Coefficient of variation of stock B = = 0.6 3. Under what
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= 14% versus 12% for X. b. = (-10% – 12%)2(0.1) + (2% – 12%)2(0.2) + (12% – 12%)2(0.4) + (20% – 12%)2(0.2) + (38% – 12%)2(0.1) = 148.8%. X = 12.20% versus 20.35% for Y. CVX = X/ rX = 12.20%/12% = 1.02‚ while CVY = 20.35%/14% = 1.45. Suppose you are the money manager of a $4 million investment fund. The fund consists of 4 stocks with the following investments and betas: Stock Investment Beta A $400‚000 1.50 B 600‚000 (.50) C 1‚000‚000 1.25 D 2
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Questions 1. a. Discuss the specific items of capital that should be included in the WACC. Because WACC is used for making long term capital investment decisions‚ the WACC should include long term debt‚ preferred stock and common stock that helps pay for long term assets. Also include short term sources of capital like accounts payable and accruals dealing with noninterest bearing liabilities and short term interest bearing debt like notes payable b. The comptroller currently finds the weights
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Financial Management Final Exam 3/2/2013 Q1. Calculating NOPAT: NOPAT = Operating Income (EBIT) x (1 – Tax) Operating Income (EBIT) = 700 Tax = 0.35 NOPAT = 700 x (1 – 0.35) = $455.00 Q2. Income Statement: Income Statement (EUR) Sales 15‚000 Operating cost 7‚500 Depreciation 1‚200 Amortization 0 Bonds 6‚500 Bonds interest 6.25% Tax rate (income) 35% EBIT = Sales – Operating cost – Depreciation – Amortization EBIT = 15‚000 – 7‚500 – 1‚200 – 0 EBIT = EUR 6
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preferences: borrow or lend to achieve the individual consumption desired “Real” rates r* represents the “real” risk-free rate of interest. Like a T-bill rate‚ if there was no inflation. From 1% to 4% per year. rRF = rate of interest on Treasury securities. (no risk of default); rRF =r* + IP= avg. inflation rate expected over life of security & compensate expected loss of purchasing power. r = r* + IP + DRP + LP + MRP (inflation premium‚ default risk premium‚ liquidity premium‚ maturity risk
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proxy for the risk-free rate‚ rRF. For the market risk premium‚ rM - rRF‚ just assume a premium of 6.0%. 3.98 + (6%) + beta = 1094 b. Find an estimate of Emerson Electric’s beta using Yahoo! Finance (use the stock symbol lookup function if necessary). The beta estimate is found on the “Key Statistics” page. Beta = 1.2 c. From data gathered in parts a and b use the CAPM model to determine Emerson’s required return. Required rate of return: beta = 1.2‚ rRF = 7%‚ and RPM = 5%. Use the
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to maintain six called “red lines” on tax‚ social security‚ immigration‚ treaty amendments‚ EU budget and border control) - Re-weighting of the Council of Minister vote. Due to its importance and controversy‚ I included the Rapid Reaction Force (RRF)
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T)(D/E)] bL = levered beta bU = unlevered beta T = tax rate D/E = debt to equity ratio 3. Firm value Rs = Cost of equity G = cash flow growth rate 4. rRF = the risk-free interest rate RPM = the expected market risk premium on an average stock = rM – rRF rM = the expected return on the market portfolio bi = the beta coefficient for the ith security wd = the % of debt in the capital structure ws = the % of common equity in the capital
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