MGFC10final_Sum2013_Solution.pdf - Answer 1 a RHR 0.08 0.10 0.12 0.14 Pr RHR Pr 0.10 0.45 0.25 0.20 0.008 0.045 0.030 0.028 0.111 E(RHR = 0.111 2 RHR Pr

# MGFC10final_Sum2013_Solution.pdf - Answer 1 a RHR 0.08 0.10...

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Answer 1: a. HR R Pr Pr HR R 2 Pr HR R 0.08 0.10 0.008 0.00064 0.10 0.45 0.045 0.0045 0.12 0.25 0.030 0.0036 5 0.14 0.20 0.028 0.00392 0.111 0.01266 E(R HR ) = 0.111 2 2 2 2 ( ) ( ) 0.01266 0.111 0.000339 HR HR HR E R E R 0.000339 0.018412 A b. M R Pr Pr M R Pr 2 M R 0.06 0.30 0.0180 0.00108 0.07 0.35 0.0245 0.001715 5 0.08 0.35 0.0280 0.00224 0.0705 0.005035 E(R M ) = 0.0705 2 2 2 2 ( ) ( ) 0.005035 0.0705 0.00006475 M M M E R E R 008047 . 0 00006475 . 0 M c. , HR M = (0.08-0.111)(0.06-0.0705)0.1 + (0.10-0.111)(0.06-0.0705)0.2 + (0.10-0.111)(0.07-0.0705)0.25 + (0.12-0.111)(0.07-0.0705)0.1 +(0.12-0.111)(0.08-0.0705)0.15 + (0.14-0.111)(0.08-0.0705)0.20 = 0.00003255+0.00002310+0.000001375-0.00000045+0.000012825+0.0000551 = 0.0001245 5 , , 0.0001245 0.8403 0.018412 0.008047 HR M HR M HR M d. , 2 0.0001245 1.9228 0.00006475 HR M HR M 2 e. ( ) ( ( ) ) HR f HR M f E R R E R R 0.111 1.9228(0.0705 ) f f R R f R 0.026612 2 f. 1 0.30 (1 ) 1.30 1.30 WACC S B c WACC S B B r r r T r V V V = 1 2 1 2 0.3 0.111 0.06(1 0.4) 3 3 1.3 3 1.3 WACC r 6 0.037 0.018462 0.153846 WACC WACC r r 0.065546 WACC r 1,000,000(1 0.4) 10,000,000 \$6,879,536 0.065546 0.03 NPV  
Answer 2: a. Sales \$2,500,000 Variable Cost -1,000,000 Depreciation -800,000 Taxable Income 700,000 Taxes @ 40% 280,000 After tax income 420,000 Depreciation 800,000 Investment -800,000 UCF 420,000 10 ) )( 1 ( 0 0 B c S r r T S B r r 0 0 0.15 0.40(1 0.4)( 0.0.09) r r

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