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Stocks A and B are currently selling for $75 and $42, respectively. Assume the expected return and the standard deviation of the market portfolio is 10% and 12%, respectively and the risk-free rate is 0.5%. The standard deviation for A and B are 18% and 14%, respectively; and the correlation of each stock with the market portfolio is 0.35 and 0.65. Suppose that you estimate a year-end target price of $78 and $46 for these stocks (NO DIVIDENDS ARE EXPECTED). Using CAPM as a benchmark, calculate the alpha for each stock and state whether the stocks are underpriced or overpriced.
Allied Products, Inc., is considering a new product launch. The firm expects to have annual operating cash flow of $6.9 million for the next 8 years. Allied Products uses a discount rate of 11 percent for new product launches. The initial investment ..
The company's beta is 1.35, the market risk premium is 8% and the risk-free rate is 3%. what is the company's current price?
Debra deposited $1000 five years ago in an account that paid 4% annually. But three years ago she moved her money to a different account that pays 5% compounded semi annually. How much does she have in her account now?
Company A owns a patent with 15 years of remaining life. If Company A considers 10% per year to be its minimum acceptable return on investment,
The new line would cost $1 million, have a five-year life, and be depreciated using MACRS over three years. What is the NPV of the new production line?
Suppose that you are the sole owner of an all-equity firm, the assets of which are worth $500,000. The ROA is 15% per year paid as a dividend to you. If you have the firm issue $100,000 of debt at 6%, the interest expense will be paid by the firm out..
What is the maximum price you will pay for a bond with a face value of $1000 and a coupon rate of 14%, paid annually, if you want a yield of 10%. Assume that bond will mature in 10 years and the first payment will be received in one year
How much will you have to pay out of pocket for repairs on your home if you have your home insured for $100,000,
Trahan Lumber Company hired you to help estimate its cost of common equity. You obtained the following data: D1 = $1.25; P0 = $27.50; g = 5.00% (constant); and F = 6.00%. What is the cost of equity raised by selling new common stock?
Prepare a statement of cash flows for 2013 and the 2014 projections. What did you learn from these statements?
You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $60,000. The truck falls into the MACRS 3-year class, and it will be sold after three years for $20,900. The firm’s marginal ..
Explicate the relationship of required rates and prices of preferred stocks.
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