Reference no: EM132943312
Questions -
Q1. Consider the following TWO 5-year projects with 8% cost of capital.
PROJECT A
Initial investment = 55,000
Expected operating cash flows = 20,000 - 10,000 - 30,000 - 5,000 - 5,000
PROJECT B
Initial investment = 59,000
Expected operating cash flows = 35,000 - 15,000 - 10,000 - 7,000 - 6,000
a. Calculate the NPV for both projects (Using MICROSOFT word)
b. Calculate the IRR for both projects. (Using MICROSOFT word)
c. Calculate the MIRR for both projects. (Using MICROSOFT word)
d. Calculate the PIR for both projects. (Using MICROSOFT word)
e. Explain briefly which project you would select and why. (Using MICROSOFT word)
Q2. ABC Corporation is comparing two different capital structures: an all-equity plan (Plan 1) and a levered plan (Plan 2). Under Plan 1, the company would have $3.0 million of stock outstanding (equity). Under Plan 2, there would be 800,000 shares of stock outstanding and $2.2 million in debt outstanding. The interest rate on the debt is 8 percent, and the tax rate is 40%.
a. Calculate the point of indifference/breakeven EBIT. (Using MICROSOFT word)
b. Explain briefly which plan the firm should follow and why. (Using MICROSOFT word)
Q3. Considering a stock for investment. The beta of the stock is 1.30 & the average return on the market index is 14%. The t-bond rate is 3%.
a. Calculate the expected return from the stock using the CAPM. (Using MICROSOFT word)
b. Describe briefly the two types of risk as defined by the CAPM. (Using MICROSOFT word)
c. If your expected return from the investment is 15%, should you invest in this stock? Explain your decision briefly. (Using MICROSOFT word)
Q4. We are considering 2 stocks for our portfolio. Stock A has an expected return of 15% and a weight of 40% in our portfolio. Stock B has an expected return of 12% and has a weight of 60% in our portfolio.
a. Calculate the Expected return from the portfolio. (Using MICROSOFT word)
b. Calculate the variance of the portfolio. (Using MICROSOFT word)
c. Calculate the standard deviation of the portfolio. (Using MICROSOFT word)
d. Describe briefly the concept of the risk-return tradeoff. (Using MICROSOFT word)
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