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Question;27. You hold a diversified portfolio consisting of a;$5,000 investment in each of 20 different common stocks. The portfolio beta is;equal to 1.12. You have decided to sell a lead mining stock (b = 1.00) at;$5,000 net and use the proceeds to buy a like amount of a steel company stock;(b = 2.00). What is the new beta of the portfolio?;a.;1.1139;b.;1.1725;c.;1.2311;d.;1.2927;e.;1.3573;28. A stock just paid a dividend of D0 = $1.75. The required;rate of return is rs = 12.0%, and the;constant growth rate is g = 4.0%. What is the current stock price?;a.;$20.56;b.;$21.09;c.;$21.63;d.;$22.18;e.;$22.75;29. If D0 = $2.75, g (which is constant) =;3%, and P0 = $36, what is the stock's;expected total return for the coming year?;a.;9.82%;b.;10.07%;c.;10.33%;d.;10.60%;e.;10.87%;30. Gary Wells Inc. plans to issue perpetual preferred stock with an annual;dividend of $6.50 per share. If the required return on this preferred stock is;6.5%, at what price should the stock sell?;a.;$90.37;b.;$92.69;c.;$95.06;d.;$97.50;e.;$100.00;31. Assume that you are a consultant to Broske;Inc., and you have been provided with the following data: D1 = $1.30, P0 = $42.50, and g =;7.00% (constant). What is the cost of equity from retained earnings based on;the DCF approach?;a.;9.08%;b.;9.56%;c.;10.06%;d.;10.56%;e.;11.09%;32. You are considering two mutually exclusive, equally risky, projects. Both;have IRRs that exceed the WACC that is used to evaluate them. Which of the;following statements is CORRECT? Assume that the projects have normal cash;flows, with one outflow followed by a series of inflows.;a.;If;the two projects' NPV profiles do not cross in the upper right quadrant, then;there will be a sharp conflict as to which one should be selected.;b.;If;the cost of capital is greater than the crossover rate, then the IRR and the;NPV criteria will not result in a conflict between the projects. One project;will rank higher by both criteria.;c. If;the cost of capital is less than the crossover rate, then the IRR and the NPV;criteria will not result in a conflict between the projects. One project will;rank higher by both criteria.;d.;For;a conflict to exist between NPV and IRR, the initial investment cost of one;project must exceed the cost of the other.;e.;For;a conflict to exist between NPV and IRR, one project must have an increasing;stream of cash flows over time while the other has a decreasing stream. If both;sets of cash flows are increasing or decreasing, then it would be impossible;for a conflict to exist, even if one project is larger than the other.;33. Aubey;Inc. is considering two projects that have the following cash flows;Project 1;Project 2;Year;Cash Flow;Cash Flow;0;$2,000;$1,900;1;500;1,100;2;700;900;3;800;800;4;1,000;600;5;1,100;400;At what cost of capital would the;two projects have the same net present value?;a.;4.73%;b.;5.85%;c.;6.70%;d.;7.50%;e.;8.20%


Paper#44942 | Written in 18-Jul-2015

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