Reference no: EM133111355

1. Krysy, Inc. has a beta of 1.4, the risk-free rate is 3.25%, and the expected return on the market is 9.35%. What is the expected return for Krysy, Inc? _____.  (Your answer must be in the form of 1.23% or 11.23%.) Use the CAPM to calculate this.

2. What is the market risk premium implied in Question 1 above? _____. (Your answer must be in the form of 1.23% or 11.23%.).

3. Is the expected return on shares of stock in Krysy, Inc. in Question 1 Higher or Lower or Equal to the expected return on the market portfolio?

4. Markus purchased stock in a start-up company at a price of $88 per share one year ago. This company did not do well initially, but showed some longer-term promise, so it was acquired by JP Morgan at a price of $11 per share. What is Marcus's return on his investment? (Your answer must be in the form of 1.23% or 11.23%.).

5. You invested $100 in the Ishares Fund one year ago. It paid a dividend of $4 today, and you immediately sold your shares for $100. What was your capital gains yield on this investment?

6. Maria purchased 100 shares of Carter, Inc. stock for $100 per share one year ago. She just received a dividend of $4 per share and then sold the shares for $116 per share. What was her dividend yield?

7. Assume Bruno Corp. has a market value of $4 Billion of equity and a market value of $19.8 billion of debt. What is the weight for equity that is used for calculating the WACC? (Your answer must be in the form of 1.23% or 11.23%.)

8. The initial cost of a potential project is $5,425. Revenues are estimated to be $528 each year for the next 15 years. The company's cost of capital is 11.85%. Using your financial calculator, what is the NPV for this project? _____. (Be very careful about minus signs that you may see on your calculator, but for which the number that actually answers the question may be positive. NPV can be positive or negative. Just be sure to answer the question that is asked.)

Questions 9-13: What are the financial calculator inputs (numbers entered) or calculator output (the final number calculated) for the $528 revenues recurring every year that are used in the calculation for Question 8 above? (If you do not need to use one of these keys for the calculation requested, enter a 0 (zero) for that key. (Clue: You do not need to use the $5,425 cost for questions 9-13. You only need to calculate the value of the series of yearly revenues here. You only net revenue and cost for Question 8.)

9. N= _____.

10. I/Y= _____.

11. PV= _____.

12. PMT= _____.

13.  FV= _____.

14. The Miranda Company is evaluating building an additional warehouse. The company already owns a piece of land that could be used for this warehouse. This land could be leased for $800 per month to another company. Should the $800 per month be included or omitted from the capital budgeting financial calculation?

15. The $800 per month in Question 14 is a(n) _____ cost.

16. To help Miranda Company decide whether or not to build the additional warehouse, it hired a consulting firm to do this capital budgeting analysis for their company. Miranda Company paid the consulting firm $2,000 to do this analysis. Should the $2,000 be included or omitted from the capital budgeting financial calculation?

17. The $2,000 is Question 16 is a(n) _____ cost.

18. A manufacturing company built a plant in rural Kentucky where the land was cheap. The people who lived there supported this because they needed the employment. However, the company created pollution to the air and water there. The costs, both financial and nonfinancial, that this pollution created for the residents was not borne by the manufacturing company. This is an example of one kind of _____.

19. Modigliani and Miller published impressive and influential research articles on the theory of Capital Structure. All corporations have equity, but not all corporations have debt in their capital structure. In the original M&M research, they made assumptions that led to a result that the proportions of debt and equity did not matter and did not affect the value of the firm. However, in real life, those underlying assumptions do not hold, and the result is that the proportions of debt and equity do matter and do affect the value of the firm. When adding debt or more debt to the capital structure is beneficial to a company, it is because of the effect caused by _____.

20. Following Question 19:  When adding debt or more debt to the capital structure is detrimental to a company, it is because of the increased potential for _____.

21. Adding more debt to a corporation's capital structure _____ the company's leverage. (Answer either Increases or Decreases.)

22. True or False: A company with high growth potential will tend to retain earnings and not pay out dividends to shareholders. In this case, the price of the stock and the capital gains enjoyed by shareholders both tend to increase more than for a company that pays out dividends.

23. True or False: A mature, low-growth company will likely pay out dividends to its shareholders, and some shareholders prefer to receive dividends.

24. Oil companies like Exxon Mobil have investments in multiple different levels of the industry, from extraction facilities to refineries to distribution. These different but related investments are an example of _____ integration.

25. True or False: Purchasing Power Parity exists if identical products in two countries with different currencies cost the same amount because the exchange rates will adjust to cause this to happen. PPP is also know as the law of one price, and this is generally true, even though not always completely perfectly,