Reference no: EM133118370

1. The rate of return on the U.S. government treasury bill is 0.01 and the expected rate of return on the Wilshire 5000 is 0.06 . What is the required rate of return for a stock with a Beta 0.97.

2. Menger Corporation has a 0.4 probability of a return of 0.37, a 0.3 probability of a rate of return of 0.05, and the remaining probability of a -0.20 rate of return. What is the expected rate of return of Menger Corporation.

3.Hayek Corporation has a 0.5 probability of a return of 0.52, a 0.3 probability of a rate of return of 0.07, and the remaining probability of a 0.10 rate of return. What is the variance in the expected rate of return of Hayek Corporation.

4. Consider a company financed with 0.5 equity, 0.1 preferred stock, and the remaining debt subject to a corporate tax rate 0.4 If the required rate of return on the debt is 0.07, on the preferred stock is 0.09 and on the common stock is 0.15, what is the working average cost of capital for this company.

5. A stock is trading for 33, and just paid a dividend of 1.3 which is expected to grow at a fraction 0.15 per year. If Goldman Sacs charges a fraction 0.15 as a flotation cost, what is the required rate of return on a new stock issue.

6. What is the Net Present Value (NPV) of the following set of cash flows if the cost of capital is 0.12

Co = -290

C01 = 400

C02 = 320

C03 = 80

7.Consider a company subject to a corporate tax rate of 0.2. If the company has a debt ratio of 0.0, and an unleveraged beta of 0.5, what is the company's leveraged beta.

8.A company has an un-leveraged value of 1,000,000 and debt 400,000. If the company is subject to a corporate tax rate of 0.10, and investors in the company are subject to a tax rate of 0.40 on equity income and 0.05 on debt income, what is the company's value.