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Questions -
Q1. How does the relationship between the average return and the historical volatility of individual stocks differ from the relationship between the average return and the historical volatility of large, well-diversified portfolios?
Q2. Explain why the risk premium of a stock does not depend on its diversifiable risk.
Q3. Suppose the market portfolio has an expected return of 10% and a volatility of 20%, while Microsoft's stock has a volatility of 30%.
a. Given its higher volatility, should we expect Microsoft to have an equity cost of capital that is higher than 10%?
b. What would have to be true for Microsoft's equity cost of capital to be equal to 10%?
Q4. Your firm is planning to invest in an automated packaging plant. Harburtin Industries is an all-equity firm that specializes in this business. Suppose Harburtin's equity beta is 0.85, the risk-free rate is 4%, and the market risk premium is 5%. If your firm's project is all equity financed, estimate its cost of capital.
Aquaculturists (people who farm marine resources, typically in semi-enclosed areas off the coast) have development methods of growing various invertebrates
a. What is the best estimate for Morningside's cost of equity? (Show work with excel formula) b. What is the firm's corporate cost of capital? (Show work with excel formula)
The Rule of 72 provides a guideline for determining how long it takes your money to double. This rule can also be used to determine your earning rate.
Metlock Candy Company offers an MP3 download (seven-single medley) as a premium for every 5 candy bar wrappers presented by customers together with $2.75.
A stock sells for $40. The next dividend will be $4 per share. If the rate of return earned on reinvested funds is 15% and the company reinvests 40% of earnings in the company.
Most analysts will choose one oscillator to use in their analysis. - Explain why using one oscillator is preferable to using the information from multiple oscillators.
A low-carbon-steel machine part, operating in a corrosive atmosphere, lasts 6 years, and costs $350 installed. If the part is treated for corrosion resistance it will cost $500 installed.
Your firm is contemplating the purchase of a new $787,500 computer-based order entry system. The system will be depreciated straight-line to zero over.
Dryden, Corp. has 500,000 shares of common stock outstanding, a P/Eratio of 11, and $900,000 earnings available for commonstockholders. The board of directors has just voted a 5:2 stock split.
What are the advantages & disadvantages of each estate planning strategy? What would likely happen without your plan being implemented?
When he purchased the stock two years ago, dayne paid $59.50 per share. Every three months during the time that he held the stock, dayne received a quarterly dividend equal to $.50.
Calculate the NPV and IRR of the project and if the cost of new machine has increased to $235,000, what are the NPV and IRR of the project?
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