Reference no: EM131448477
A Stock has a required return of 11%, the risk- free is 7%, and the market risk premium is 4%.
a. What is the stock’s beta?
b. If the market risk premium increased to 6%, what would happen to the stock’s required rate of return? What would it be? Assume that the risk free rate and the beta remain unchanged.
c. If investors’ aversion to risk increased, would the risk premium on a high-beta stock increase by more or less than that of a low-beta stock? Explain.
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Sensitive is operating cash flow to changes in quantity sold
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New machine for the production of latex
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Generate annual cash flows
: A project requires an upfront investment of $20,000, to be paid today. It will generate annual cash flows for 5 years that grow at 10% per year, after which the project will end with no residual value. Year 1 cash flows will be $5,000. The appropriat..
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What is your effective annual rate of return
: You’ve just opened a margin account with $20,000 at your local brokerage firm. You instruct your broker to purchase 850 shares of Landon Golf stock, which currently sells for $99 per share. What is your total dollar return from this investment? What ..
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The risk free rate and the beta remain unchanged
: A Stock has a required return of 11%, the risk- free is 7%, and the market risk premium is 4%. What is the stock’s beta? If the market risk premium increased to 6%, what would happen to the stock’s required rate of return? What would it be? Assume th..
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New fixed assets is required to support this growth in sales
: Thorpe Mfg., Inc., is currently operating at only 87 percent of fixed asset capacity. Current sales are $410,000. Suppose fixed assets are $350,000 and sales are projected to grow to $479,000. How much in new fixed assets is required to support this ..
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According to the dividend discount model
: Consider a company that pays out all of their free cash flow as a dividend to shareholders. They paid a dividend last year (year 0) of $1.50. Dividends are expected to grow at 5% for the life of the firm (aka forever). The appropriate discount rate i..
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: The Cornchopper Company is considering the purchase of a new harvester. Cornchopper has hired you to determine the break-even purchase price in terms of present value of the harvester. This break-even purchase price is the price at which the project’..
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: The benefit of a revised production schedule for a seasonal manufacturer will not be realized until the peak summer months. Net savings will be $1,000, $1,100, $1,200, $1,300, and $1,400 at the ends of months 4, 5, 6, 7, and 8, respectively. It is no..
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