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Chrysler, the automotive manufacturer, had a beta of 1.05 in 1995. It had $13 billion in debt outstanding in that year and 355 million shares trading at $50 per share. The firm had a cash balance of $8 billion at the end of 1995. The marginal tax rate was 36 percent.
a. Estimate the unlevered beta of the firm.
b. Estimate the effect of paying out a special dividend of $5 billion on this unlevered beta.
c. Estimate the beta for Chrysler after the special dividend.
Compute the gross profit margin ratio, the return on equity and the return on assets, rounding calculations to two decimal places and does the firm have positive or negative financial leverage? Briefly explain.
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Assignment: Financial Management, explain difference between systematic and non-systematic risk
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