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Renewals Ltd. is a firm with existing assets that generate earnings per share of $5.00. If the firm does not invest except to maintain existing assets, the earnings per share are expected to remain constant at $5.00 per year. However, starting next year the firm has the chance to invest $3.00 per share a year developing a newly discovered geothermal steam source of electricity generation. These investments are expected to generate a permanent 20% return per year. However, the source will be fully developed by the fifth year.
a) Calculate the stock price assuming investors require a 12% rate of return.
b) Show that the earnings/price ratio is .20 if the required rate of return is 20%.
2) Your friend James gladly told you that he invested $1000 in a technology company with an expected return of 30% and a standard deviation of 30%. Assume that is his total portfolio. Currently, the market portfolio has an expected return of 10% and a standard deviation of 5%. The risk-free rate of return is 2%. Assume the CAPM holds. Can you help James construct a better investment portfolio? Explain carefully with supporting calculations.
You purchase a house that costs $625,000 with an 8%, 30-year mortgage. You make a 20% down payment to avoid PMI insurance.
Increase Demand. In various ways, how is demand to an existing hotel increased? To a destination? To a mode of public transportation?
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Set forth and compare the business cases for each of the two projects under consideration by Emily Harris. Which do you regard more compelling?
Test the hypothesis that parental support is the most important source of a child's success for at least 75% of elementary school educators.
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Suppose that Mr. Smith will return the defectives for repair, where C the repair cost is given by C = 2X2 + 2X + 1. Find the mean of the repair cost.
Under the guidelines for taking collateral discussed in this chapter, what is the minimum size loan or credit line Rogers is likely to receive.
Suppose that you instead decide to invest $20,000 in Stock D, $30,000 in Stock E, and $50,000 in Stock F. What is the beta of your portfolio now
What maximum amount could Marie withdraw each month so that her balance never decreases (nearest dollar)?
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