The companys working capital requirements are

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Strategic Management: Theory & Cases: An Integrated Approach
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Chapter 10 / Exercise 3
Strategic Management: Theory & Cases: An Integrated Approach
Hill/Schilling
Expert Verified
The company's working capital requirements are expected to increase from its existing level of $1.5million to $2.0 million at the beginning of the project. The corporate tax rate is 35% and the required return is 18%. a)Calculate the NPV of the proposed project and indicate whether the company should proceed with the project. (15 marks)b)Your CEO has asked you to determine the economic break-evensales point for the new high-endClear-Klean vacuum project. You are specifically requested to ignore all working capital and salvagevalue considerations and to assume the equipment will be fully depreciated over the life of the projectwith annual depreciation calculated on a straight-line basis? (5 marks)DO NOT DETACH THESE PAGES page5
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Strategic Management: Theory & Cases: An Integrated Approach
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Chapter 10 / Exercise 3
Strategic Management: Theory & Cases: An Integrated Approach
Hill/Schilling
Expert Verified
THIS PAGE IS LEFT BLANK FOR YOUR USE DO NOT DETACH THESE PAGES page6
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Question 2:CAPM (20 marks)a)(6 marks) Fill in the blanks in Table 1. Show how you arrived at your solution(s) in the space below the table. The market standard deviation is:
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b)(6 marks) Calculate the required return for the three stocks listed in Table 2 and show your work in the space below. Fill in your answers in the column with the heading “Required Return”. The r= 3% and the market risk premium is MRP = 7.5% fTable 2StockRequiredReturnQ0.261.60R0.351.30S0.300.60DO NOT DETACH THESE PAGES page9
c)(4 marks) Rank the stocks in Table 3 from highest to lowest risk in the context of being the sole component of an investor’s portfolio. Indicate the ranking in Table 3, using the “1” which denotesthe highest risk, “2” for the second-highest and “3” for the lowest risk and briefly explain your logic for the ranking in the space below the chart. Table 3StockRank Q0.261.60R0.351.30S0.300.60DO NOT DETACH THESE PAGES page10
d)(4 marks) Rank the stocks in Table 4 from highest to lowest risk (using “1” to denote the lowest risk, “2” for the second-lowest and “3” for the highest risk) in the context of a well-diversified portfolio. Indicate the ranking in Table 4 and briefly explain your logic for the ranking in the space below the chart. Table 4StockRank Q0.261.60R0.351.30S0.300.60DO NOT DETACH THESE PAGES page11
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