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Suppose there are only two risky firms in an economy. The total value of the shares in firm A is 5 billion and the total value of the shares in firm B is 7 billion. For firm A the standard deviation of the returns to its shares is 20% and the expected return is 12%. For firm B the standard deviation is 30% and the expectedd return is 16%. There is also a risk free asset with a rate of return of 5% and total value of 5 billion. The assumptions of the CAPM hold. What is the expected return on a portfolio consisting 50% in the risk free asset and 50% in the market portfolio, and can you ever reduce your risk more by buying a risky security than by buying a risk-free asset?
It takes Cookie Cutter Modular Homes, Inc., about six days to receive and deposit checks from customers. Cookie Cutter’s management is considering a lockbox system to reduce the firm’s collection times. What is the reduction in outstanding cash balan..
Evaluate operational priorities using managerial accounting principles and practices, including budgeting
Why do firms have different capital structures and how does capital structure influence a firm’s weighted average cost of capital?
After deciding to acquire a new car, you realize you can either lease the car or purchase it with a three-year loan. The car you want costs $32,500. The dealer has a leasing arrangement where you pay $94 today and $494 per month for the next three ye..
What is the cost of debt for Kenny Enterprises if the bond sells at the following prices? What do you notice about the price and the cost of debt?
How will widespread adoption of electronic funds transfer affect the use of "float"?
Anion, an environmental engineering firm, is trying to be eco-friendly in acquiring an automobile for general office use. It is considering a gasoline-electric hybrid and a gasoline-free all-electric hatchback. which automobile is the better option o..
Discuss the process of “globalization”. What are the reasons that any firm would consider globalizing, and what are some of the risks?
Explain risk vs. reward related to your personal financial goals. Explain how savings and investing are impacted by the time value of money. Describe how interest rates impact time value of money calculation (use time value of money concepts and calc..
How much in total dividends did the company pay? What was the company's earnings before tax (EBT)?
Colors and More is considering replacing the equipment it uses to produce crayons. The equipment would cost $1.37 million, have a 12-year life, and lower manufacturing costs by an estimated $310,000 a year. The equipment will be depreciated over 12 y..
Haskell Corp. is comparing two different capital structures. Plan I would result in 14,000 shares of stock and $100,000 in debt. Plan II would result in 10,800 shares of stock and $180,000 in debt. The interest rate on the debt is 8 percent. Assume t..
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