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Suppose Grace-Sharon Company uses only debt and internal equity to finance its capital budget and uses CAPM to compute its cost of equity. Company estimates that its WACC is 12%. The capital structure is 60% debt and 40% internal equity. Before tax cost of debt is 12.5 % and tax rate is 30%. Risk free rate is rRF = 2% and market risk premium = 10% What is the beta of the company?
Trail Guides, Inc. is currently evaluating two mutually exclusive investments. After doing a scenario analysis and applying probabilities to each scenario,
when assessing the riskiness of a stock that is considered to be included in a well diversified portfolio.
In order to fund her retirement, Michele requires a portfolio with an expected return of 0.11 per year over the next 30 years. She has decided to invest in Stocks 1, 2, and 3, with 25 percent in Stock 1, 50 percent in Stock 2, and 25 percent in Stock..
A stock’s price is $32 and the price of a 3-month call option on the stock with a strike price of $32 is $3.20. Suppose a trader has $3,200 to invest and is trying to choose between buying 1,000 options and 100 shares of stock. How high does the stoc..
Your retirement fund consists of a $7,500 investment in each of 20 different common stocks. The portfolio's beta is 1.25. Suppose you sell one of the stocks with a beta of 1.0 for $7,500 and use the proceeds to buy another stock whose beta is 1.15. C..
The current stock price of Alpha airlines is $80. If Alpha issues equity, Alpha’s management anticipates that the market will react negatively and that Alpha will only be able to sell the new shares for $70 per share. If Alpha needs to finance the pu..
The chief financial officer of a home health agency needs to determine the present value of a 120000 investment received at the end of year 5. What is the present value if the discount rate is 3 %?
Suppose the stock of Host Hotels and Resorts is currently trading for $25 per share. If Host issued a 20% stock dividend, what will its new share price be?
Leila Liverpool is looking into the possibility of buying several coin-operated vending machines and placing them in the local hospitals. Each machine costs $3200, which she will depreciate on a straight-line basis over 10 years. Assume that the inco..
The British Pound currently trades for $1.30/pound. You initiated a long straddle on the British pound, using a call option with an excercise price of $1.30 and a premium of $.015 and a put option with the same maturity and excercise price and a prem..
Draw a payoff diagram for the following portfolio. Buy two call options, one with X = $20 and one with X = $30, and sell two call options, both with X = $25.
The following question requires the calculation of the firm's capital budgeting issues expected returns, and financial selection. Suppose that you as the chief financial officer for Kindle Memorial Hospital and you were asked by the CEO to analyze tw..
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