Part 1 of 1 92.5/ 100.0 Points
Question 1 of 40
2.5/ 2.5 Points
The excess return is the difference between the average return on a
security and the average return for:
A.Treasury Bonds.
B.a portfolio of securities with similar risk.
C.a broad based marke
Problem 1-6
You are a shareholder in a C corporation. The corporation earns $2 per share
before taxes. Once it has paid taxes it will distribute the rest of its earnings to you
as a dividend. The corporate tax rate is 40% and the personal tax rate on (bot
Problem 4-13
You have a loan outstanding. It requires making three annual payments at the end of the nex
three years of $1,000 each. Your bank has offered to allow you to skip making the next tw
payments in lieu of making one large payment at the end of t
Problem 3-6
Suppose the risk-free interest rate is 4%.
a. Having $200 today is equivalent to having what amount in one year?
b. Having $200 in one year is equivalent to having what amount today?
c. Which would you prefer, $200 today or $200 in one year?
I
Problem 8-22
Using the FCF projections below to calculate the NPV of the HomeNet project assuming
of:
a. 10%
b. 12%
c. 14%
d. What is the IRR of the project?
Year
FCF
0
-$16,500
1
$2,470
2
$6,580
3
$10,422
a. 10%
NPV
$10,183.43
b. 12%
NPV
$8,722.45
c. 14%
Problem 18-16
You are evaluating a project that requires an investment of $90 million today and provides a
of $115 million for sure one year from now. You decide to use 100% debt financing, that is,
$90 million. The risk-free rate is 5% and the tax rate i
Problem 19-3
Assuming that Idekos market share will increase by 0.5% per year, the required production
are shown below:
Sales Data
Market size (000 units)
Market share
Production volume
Growth/Year
5%
0.5%
2005
10,000
10.00%
1,000
2006
10,500
10.50%
1,103
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Problem 11-49
Consider a portfolio consisting of the following three stocks:
HEC Corp
Green Midget
AliveAndWell
Portfolio Weight
0.25
0.35
0.40
Volatility
12%
25%
13%
The volatility of the market portfolio is 10% and it has an expected return of 8%. The r
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1770601
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Problem 12-4
Suppose all possible investment opportunities in the world are limited to the five stocks liste
below. What does the market portfolio consist of?
Stock
A
B
C
D
E
Stock A
Stock B
Stock C
Stock D
Stock E
Total
Price/Share
($)
10
20
8
50
45
Shar
Problem 7-6
FastTrack Bikes, Inc., is thinking of developing a new composite road bike. Development w
and the cost is $200,000 per year. Once in production, the bike is expected to make $300,00
years. Assume the cost of capital is 10%.
a. Calculate the NP
Problem 13-20
Consider the following stocks, all of which will pay a liquidating dividend in a year and
Stock A
Stock B
Stock C
Stock D
Market
Capitalization
($ million)
800
750
950
900
Expected
Liquidating
Dividend
($ million)
1,000
1,000
1,000
1,000
Bet
Problem 10-6
Using the data in the table below, calculate the return for investing in Boeing stock (BA) fro
2, 2009, and also from January 2, 2011, to January 3, 2012, assuming all dividends are reinv
Date
02/Jan/08
06/Feb/08
07/May/08
06/Aug/08
05/Nov/08
Problem 15-7
Ten years have passed since Arnell issued $10 million in perpetual interest-only debt
6% annual coupon. Tax rates have remained the same at 35% but interest rates have d
so Arnells current cost of debt capital is 4%.
a. What is Arnells annual
Problem 14-21
Yerba Industries is an all-equity firm whose stock has a beta of 1.2 and an expected retur
12.5%. Suppose it issues new risk-free debt with a 5% yield and repurchases 40% of its s
Assume perfect capital markets.
a. What is the beta of Yerba
Problem 2-20
See the table far below showing financial statement data and stock price data for Mydeco Co
a. From 2009 to 2013, what was the total cash flow from operations that Mydeco genera
b. Compare capital expenditures with cash flow from operations a
Problem 6-14
Suppose you purchase a 30-year, zero-coupon bond with a yield to maturity of 6%. You hold the bond for five years
before selling it.
a. If the bonds yield to maturity is 6% when you sell it, what is the internal rate of return of your investm
Problem 4-13
You have a loan outstanding. It requires making three annual payments at the end of the nex
three years of $1,000 each. Your bank has offered to allow you to skip making the next tw
payments in lieu of making one large payment at the end of t
Problem 3-6
Suppose the risk-free interest rate is 4%.
a. Having $200 today is equivalent to having what amount in one year?
b. Having $200 in one year is equivalent to having what amount today?
c. Which would you prefer, $200 today or $200 in one year?
I
Problem 1-6
You are a shareholder in a C corporation. The corporation earns $2 per share
before taxes. Once it has paid taxes it will distribute the rest of its earnings to you
as a dividend. The corporate tax rate is 40% and the personal tax rate on (bot
Problem 9-19
Heavy Metal Corporation is expected to generate the following free cash flows over the nex
five years:
Year
FCF (million)
1
$53
2
$68
3
$78
After then, the free cash flows are expected to grow at the industry average of 4% per year.
model and
Problem 8-22
Using the FCF projections below to calculate the NPV of the HomeNet project assuming
a. 10%
b. 12%
c. 14%
d. What is the IRR of the project?
Year
FCF
0
-$16,500
1
$2,470
2
$6,580
a. 10%
NPV
$10,183.43
b. 12%
NPV
$8,722.45
c. 14%
NPV
$7,374.40
Problem 9-25
Suppose that in January 2006, Kenneth Cole Productions had EPS of $1.65 and a book v
share.
a. Using the average P/E multiple in Table 9.1 (far below), estimate KCPs share price.
b.
What range of share prices do you estimate based on the high
Problem 7-5
Bill Clinton reportedly was paid $10 million to write his book My Life. Suppose the book to
writing, Clinton could have been paid to make speeches. Given his popularity, assume that
end of the year) speaking instead of writing. Assume his cost
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To complete the homework assignments in the templates provided:
1. The question is provided for each problem. You may need to refer to your textbook f
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(1) What factors have led to increasing health care costs?
Healthcare is a commodity that contributes to overall gross domestic
product. The purpose of the Affordable Care Act 2010 was to grant
access to care to patients with predispositions, or no health