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Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $75,000 or $330,000 with equal probabilities of .5. The alternative risk-free investment in T-bills pays 4% per year.
a. If you require a risk premium of 7%, how much will you be willing to pay for the portfolio? (Round your answer to the nearest whole dollar amount.)
b. Suppose that the portfolio can be purchased for the amount you found in (a). What will be the expected rate of return on the portfolio? (Round your answer to the nearest whole number.)
c. Now suppose that you require a risk premium of 12%. What is the price that you will be willing to pay? (Round your answer to the nearest whole dollar amount.)
Comet Pasta Company stock currenly sells for $137.50 per share. The Company JUST PAID a dividend and that dividend is not expected to grow at all for the next two years, and then it will grow at a constant rate of 10 percent thereafter. What was the ..
Maccarone Incorporated had earnings of $1,500,000 last year. On average, 1 million shares were outstanding during the year. Had all holders of the company=s options exchanged them for stock at the beginning of the year, there would have been 1,250,00..
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Beryl’s Iced Tea currently rents a bottling machine for $54,000 per year, including a maintenance expenses. Purchase the machine it is currently renting for $160,000. This machine will require $20,000 per year in ongoing maintenance expenses. The mar..
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You hold your portfolio until the expiration date. On the expiration date you cash out your portfolio.
How does the new market value of equity and debt of the merged firm compare with the sum of the values of equity and debt of the constituent firms that combined in the merger?
Which of the following investments yields the highest IRR using a 15% discount rate?
The AB300 Company is identical to the BA720 Company (information in previous problem) in every respect save two: it is debt free and its cost of equity is 11.5%. What is the value of the AB300 Company?
Compute the additional investment in Accounts Receivable. Compute the incremental Return on New Investment.
The Connors Company's last dividend was $1.00. Its dividend growth rate is expected to be constant at 15% for 2 years, after which dividends are expected to grow at a rate of 10% forever. Connors' required return (rs) is 12%. What is Connors' current..
A property, if sold today, will provide the equity investor with $125,000 in cash flow after taxes. If the property is held, the annual after-tax cash flow received by the investor will be $12,000 per year for the next 10 years. Should this investor ..
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