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Security market line You plan to invest in the Kish Hedge Fund, which has total capital of $500 million invested in five stocks: Stock Investment Stock's Beta Coefficient A $160 million 0.3 B 120 million 1.9 C 80 million 3.9 D 80 million 1.0 E 60 million 3.3 Kish's beta coefficient can be found as a weighted average of its stocks' betas. The risk-free rate is 3%, and you believe the following probability distribution for future market returns is realistic: Probability Market Return 0.1 -7% 0.2 10 0.4 12 0.2 14 0.1 15 What is the equation for the Security Market Line (SML)? (Hint: First determine the expected market return.) ri = 3.0% + (7.4%)bi ri = 4.8% + (6.6%)bi ri = 3.0% + (8.8%)bi ri = 6.3% + (7.4%)bi ri = 6.3% + (8.8%)bi Calculate Kish's required rate of return. Round your answer to two decimal places. % Suppose Rick Kish, the president, receives a proposal from a company seeking new capital. The amount needed to take a position in the stock is $50 million, it has an expected return of 14%, and its estimated beta is 1.5. Should Kish invest in the new company? The new stock be purchased. At what expected rate of return should Kish be indifferent to purchasing the stock? Round your answer to two decimal places. %
Your company has an expected net income of $250,000 for next year. It also has a constant debt of $2 million. The subsudized interest rate paid by the company is 2%, while the market interest rate is 3.50%. The unlevered return on equity is 7% and th..
The common stock of Smart Toys, Inc. sells for $31.20 a share. What is the market rate of return on this stock?
It takes Cookie Cutter Modular Homes, Inc., about six days to receive and deposit checks from customers. Cookie Cutter’s management is considering a lockbox system to reduce the firm’s collection times. What is the reduction in outstanding cash balan..
Zack's Inc., an all-equity firm, is subject to a 30% corporate tax rate. Its equityholders require a 20% return. The firm's market value now is $3,500,000, and there are 175,000 shares outstanding. Suppose the firm issues $1 million of bonds at 10% a..
Select a corporation and perform an in-depth, five years, financial analysis of that firm. An overall summary of the firm’s financial condition
Assume you deposit $5,000 at the end of each year into an account paying 9.5 percent interest. How much money will you have in the account in 19 years? How much will you have if you make deposits for 38 years?
As CFO of Nile Holdings, a carpet wholesaler, you have the following information as of December 2011: Nile has an attractive investment opportunity, and to finance it, must decide whether to issue $100 million in new debt or new equity. Assume Nile r..
Debt Management Ratios Calculate the times interest earned ratio for Linda's Hats, Inc. using the following information: sales = $50,000,000, cost of goods sold = $15,000,000, depreciation expense = $2,000,000, addition to retained earnings = $10,000..
Calculate the total new value of your portfolio if you participate and 100% of shares holders do as well.
The Beranek Company, whose stock price is now $25, needs to raise $20 million in common stock. Underwriters have informed the firm’s management that they must price the new issue to the public at $22 per share because of signaling effects. How many s..
For the next fiscal year, you forecast net income of $51, 500 and ending assets of $506, 100. What is your net new financing needed for next year?
Fisk Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores. Fisk anticipates sales of 49,000 units per year, an ordering cost of $2 per order, and carrying costs of $1.60 per unit. Wha..
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