Reference no: EM1373112
United State Operations of Audi has been requested through the house office in Frankfurt to estimate the expected return on investment and risk for 2010. Audi makes the most fuel-efficient motor vehicles in the US market, sales and profits and would benefit from higher fuel prices. On the other hand, a revelation of further sudden accelerator or other problems could weaken Audi sales and profits.
Part A
US Operations of Audi has developed four (4) possible scenarios with the following probabilities and estimates of return in 2010:
Scenario Probability Return
High gas prices, no further quality problems at Audi 0.20 24%
Med gas prices, no further major quality problems at Audi 0.25 18%
Med gas prices, additional quality problems at Audi 0.35 11%
Low gas prices, major quality Q&A problems Audi 0.20 - 5%
Part B
An engineer at the main Audi US factory has identified a solution to the major quality problems impacting Audi automobiles. The solution can be implemented quickly at low cost. With the quality problems resolved, US Operations of Audi has revised the four (4) possible scenarios with the following probabilities and estimates of return in 2010:
Scenario Probability Return
High gas prices, no further quality problems at Audi 0.25 26%
Mod gas prices, no further major quality problems at Audi 0.35 20%
Mod gas prices 0.30 14%
Low gas prices, major quality Q&A problems at Audi 0.10 - 5%
Compute the expected return and risk associated with Audi for US operations in 2010 for both Parts A & B. Should Audi implement this solution? Why?
|
Concepts of accounting profit and economic profit
: How do the ideas of accounting profit and economic profit differ and explain why is economic profit smaller than accounting profit also determine the three basic sources of economic profit?
|
|
Estimating expected rate of return on the stock
: Computing expected rate of return, required rate of return on a stock. Assume Walmart stock currently sells for $30 per share. The stock just paid a dividend of $0.75 per share.
|
|
Computing profit margin and asset turnover
: Your parents are planning investing in PepsiCo common stock. They ask you, as an accounting expert, to make an analysis of the firm for them. The financial statements of firm can be found at firm's website.
|
|
Compute expected rate of return and standard deviation
: You are planning a security with the following possible rates of return, Compute the expected rate of return and the standard deviation of the returns.
|
|
Computing the expected return
: United State Operations of Audi has been requested through the house office in Frankfurt to estimate the expected return on investment and risk for 2010.
|
|
Solving problems on market efficiency
: Four firms are in fast increasing sectors. Each has a constant price to earnings ratio (P/E). Each firm is about to publicize new products that could boost companies earning per share.
|
|
Graphing the security market line
: A regression was run in Stock B and market proxy portfolio, S&P 500. The regression line is defined as: Y =8.3+1.2X. If risk-free rate is 4%, the market risk premium is 6%, and market return on Stock B is 10.5%,
|
|
Stock valuation of a company
: Determine the fair market value of Apple corporation (AAPL) stock values using RIM model and Price Ratio Analysis, given that Apple does not pay dividends?
|
|
Calculating risk premium
: Suppose if WalMart has a beta of 1.1, current risk-free rate is 3.5%, average risk free rate over the last 70 years is 3.2 percent, and the expected return on the stock market is 12.3 percent,
|