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FIN260 assignment 4




Question;Assignment;4;1) A stock has an expected return of 11 percent, the risk-free;rate is 5.2 percent, and the market risk premium is 5 percent. What is the;stock's beta? (5 pts);2) You own a portfolio equally invested in a risk-free asset and;two stocks. One of the stocks has a beta of 1.9 and the total portfolio is;equally as risky as the market. What is the beta of the second stock? (5;pts);3)Cookie;Dough Manufacturing has a target debt-equity ratio of 0.5. Its cost of equity;is 15 percent, and its cost of debt is 11 percent. What is the firm's WACC;given a tax rate of 31 percent? (8 pts);4)Electronics;Galore has 950,000 shares of common stock outstanding at a market price of $38;a share. The company also has 40,000 bonds outstanding that are quoted at 106;percent of face value. What weight should be given to the debt when the firm;computes its weighted average cost of capital? What is debt-to equity;ratio? (12 pts);5) Travis & Sons has a capital structure which is based on 45;percent debt, and 55 percent common stock. The pre-tax cost of debt is 7.5;percent, and the cost of common stock is 13 percent. The company's tax rate is;39 percent. The company is considering a project that is equally as risky as;the overall firm. This project has initial costs of $325,000 and annual cash;inflows of $87,000, $279,000, and $116,000 over the next three years;respectively. What is the projected net present value of this project? Hint: First calculate the weighted average;cost of capital (WACC) and then use this rate as the discount rate to calculate;the NPV of the project (10 pts)


Paper#47814 | Written in 18-Jul-2015

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