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Albert the Analyst holds a portfolio with a market value of $900,000 (consisting of a $100,000 investment in each of nine different common stocks). If the portfolio's beta is currently 1.30 and Albert decides to sell one of his stocks that has a beta of 0.90 and to use the proceeds to buy a replacement stock with a beta of 1.50. What would the portfolio's new beta be?
Select one: a. 1.12 b. 1.24 c. 1.29 d. 1.37
The Border Crossing has no debt and a cost of capital of 11.2 percent. Assume the firm switches to a debt-to-equity ratio of .25 and issues bonds at par with a 6.3 percent coupon. What will be its cost of equity after the switch? Ignore taxes.
You own a 5-year bond with a face value of $1,000 and a coupon rate of 10 percent with annual payments. The bond is currently worth $1,216.47. If market interest rates remain unchanged, what will be the value of the bond when there are only 3 years l..
The compounded interest rate is the discount rate typically. If that is the case, then what one (of many possible) thing would be driving the discount rate? If this into the case, then explain how the compounded interest rate is a component of the di..
The Everly Equipment Company's flange-lipping machine was purchased 5 years ago for $90,000. It had an expected life of 10 years when it was bought and is being depreciated by the straight-line method by $9,000 per year. A new high-efficiency digital..
A used car can be kept for two more years and then sold for an estimated $3000, or it could be sold now for $9500. The average annual maintenance cost over the past 7 years has been $500 per year. The new car will be under warranty for the first 4 ye..
On January 1, 2015, Charlie Corporation acquires all of the net assets of Rocky Corporation for $2,000,000. The following intangible assets are included in the purchase agreement: Assets Acquisition Cost Goodwill and going concern value $105,000 Lice..
Mr. and Mrs. Lukert own a sole proprietorship and have no other source of income. This year, they paid $11,674 Massachusetts income tax, all of which is attributable to their business profit. Can they deduct their state income tax as a business expen..
Holmes, Inc., has offered $542 million cash for all of the common stock in Watson Corporation. Based on recent market information, Watson is worth $504 million as an independent operation. If the merger makes economic sense for Holmes, what is the mi..
Wine and roses, inc. offers a 7.0 percent Wine and Roses, Inc. offers a 7.0 percent coupon bond with semiannual payments and a yield to maturity of 7.75 percent. The bonds mature in 14 years. What is the market price of a $1,000 face value bond?
Nally, Inc., is considering a project that will result in initial aftertax cash savings of $6.9 million at the end of the first year, and these savings will grow at a rate of 3 percent per year indefinitely. What is the maximum cost Nally would be wi..
The Saunders Investment bank has the following financing outstanding. Debt: 70,000 bonds with a coupon rate of 10 percent and a current price quote of 110; the bonds have 20 years to maturity. 240,000 zero coupon bonds with a price quote of 20 and 30..
A company has 2 million shares outstanding. It paid a dividend of $2 during the past year, and expects that dividends will grow at 6 percent annually in the future. Stockholders require a rate of return of 13 percent. What would you expect the price ..
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