FIN 300 exam 3 study guide.docx - FIN 300 Quiz 5Risk and...

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FIN 300 Quiz 5Risk and ReturnSolutionsSUM2021B**ThisisthepropertyofDavidHoffmanandASUandmaynotbecopied,distributed,orpostedonline.**1.Polly Khan is trying to calculate Builtrite's beta given the following information: The current market rate of interest is 8%.The current risk-free rate is 3%. If investor’s have been requiring a 11% annual return on Builtrite’s stock, what is the stock's beta?CAPM = RF + b(KM –RF)11= 3+ X(8–3)8 = 5X 1.6= betaCAPM = RF + b(KM –RF)11= 4+ X(8–4)7= 4X 1.75= betaCAPM = RF + b(KM –RF)11= 5+ X(8–5)6= 3X 2= beta2.Builtrite has calculated the average cash flow for a potential project to be $15,000 with a standard deviation of $3000.What is the probability of a cash flow being between $10,500 and $12,000? (Assume a normal distribution.)10.51215-1.5-1 0.4332 -.3413 = .0919 or 9.19%2. mean 18,000, standard deviation 400018 21 240. .75 1.5.4332 -.2734 = .1598 or 15.98%3.mean 21,000, standard deviation 600015 19 21-1 -.33 0.3413 -.1293 = .2120 or 21.20%3and 4.EconomyReturn%Prob.`ExpValue(k –k)(k –k)2(k –k)2 ProbBoom2520%5.012 14428.8Good1540%6.02 4 1.6Level1030%3.0-3 9 2.7Poor-1010%-1.0-23 529 52.9ExpectedValue13.086Standard deviation 9.275.The general purpose of the CAPM is to try and equate a stock’s return to the market return. False.Equateastock’sreturntoitsperceivedlevelofrisk.5. The general purpose of the CAPM is to try and equate a stock's return to its perceived level of risk. True.Next Lesson
FIN 300 QUIZ 5 Cost of Capital Solutions1.Builtrite Auto has preferred stock shares outstanding that pay an annual dividend of $4 and are currently selling for $74 a share. What is the after-tax cost of preferred stock if the flotation cost for new shares is 5% and Builtrite is in the 34% marginal tax bracket?Vps = 4 / 74(1-.05) = 5.69%1.Builtrite Auto has preferred stock shares outstanding that pay an annual dividend of $3 and are currently selling for $64 a share. What is the after-tax cost of preferred stock if the flotation cost

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