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##### MBA570_Homework_full course

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Question;MBA570_Homework_2 qUES;Instructions: Either type or;write your answers directly on this document and submit the completed;assignment to your ESO. If you use additional documents to perform;calculations, label them with your name and course number (MBA 570) and submit;them as well. Each question is worth 10 points.;1.;Honda;Motor Company is considering offering a $4,000 rebate on its minivan, lowering;the vehicle?s price from $25,000 to $21,000. The marketing group estimates that;this rebate will increase sales over the next year from 48,000 to 68,000;vehicles. Suppose Honda?s profit margin with the rebate is $2,000 per vehicle.;If the change in sales is the only consequence of this decision, what are its;benefits and costs?;The benefits are;$__________ million. (Round to one decimal place.);The costs are;$__________ million. (Round to one decimal place.);Is this a good;idea? (Answer Yes or No.);2.;Suppose;the current market price of corn is $4.14 per bushel. Your firm has a;technology that can convert 1 bushel of corn to 3 gallons of ethanol. If the;cost of conversion is $1.33 per bushel, at what market price of ethanol does;conversion become attractive?;The price at;which the conversion becomes attractive is $__________ per gallon. (Round;to nearest cent.);3.;Suppose;the risk-free interest rate is 6%.;a.;Having;$200 today is equivalent to having $__________ in one year. (Round to the nearest cent.);b.;Having;$200 in one year is equivalent to having $__________ today. (Round to the nearest cent.);c.;Which;would you prefer, $200 today or $200 in one year? (Enter response here);d.;Does;your answer depend on when you need the money? Why or Why not?;A.;Yes;because if you didn?t need it, it?s not worth $200.;B.;Yes;because if you did need it today, it is more valuable than $200.;C.;No;because if you did need it, you could borrow the $200.;D.;No;because if you didn?t need it, then the $200 can be invested and would be worth;more than $200 in one year.;4.;Your;firm has a risk-free investment opportunity where it can invest $165,000 today;and receive $174,000 in one year. The project will be attractive when the;interest rate is any positive value less than or equal to __________%. (Round to two decimal places.);5.;Your;firm has identified three potential investment projects. The projects and their;cash flows are shown below;Project;Cash Flow Today (millions);Cash Flow in One Year (millions);A;- $7;$24;B;$4;$2;C;$17;-$11;Suppose;all cash flows are certain and the risk-free interest rate is 11%.;a.;What;is the NPV of each project?;The;NPV of project A is $__________ million. (Round;to two decimal places.);The NPV of;project B is $__________ million. (Round;to two decimal places.);The;NPV of project C is $__________ million. (Round;to two decimal places.);b.;If;the firm can choose only one of these projects, which should it choose based on;the NPV decision rule? (Select the best;choice.);A.;Project;B;B.;Project;C;C.;Project;A;D.;Cannot;tell;c.;If;the firm can choose any two of these projects, which should it choose based on;the NPV decision rule? (Select the best;choice.);A.;Projects;A and B;B.;Projects;B and C;C.;Projects;A and C;D.;Cannot;tell;6.;Compute;the following;a.;The;present value of $2,000 received 14 years from today when the interest rate is;10% per year is $__________. (Round to;the nearest dollar.);b.;The;present value of $2,000 received 23 years from today when the interest rate is;12% per year is $__________. (Round to;the nearest dollar.);c.;The;present value of $2,000 received 7 years from today when the interest rate is 5%;per year is $__________. (Round to the nearest;dollar.);7.;Your;daughter is currently 5 years old. You anticipate that she will be going to;college in 13 years. You would like to have $156,000 in a savings account to;fund her education at that time. If the account promises to pay a fixed interest;rate of 5% per year, you should deposit $__________ today to ensure that you;will have $156,000 in 13 years. (Round to;the nearest dollar.);8.;Suppose;you receive $180 at the end of each year for the next three years;a.;If;the interest rate is 10%, the present value of these cash flows is $__________. (Round to the nearest cent.);b.;The;future value in three years of the present value you computed in (a) is;$__________. (Round to the nearest cent.);c.;Suppose;you deposit the cash flows in a bank account that pays 10% interest per year;The balance in;the account at the end of year one;is $__________ (Round to the nearest cent.);The balance in;the account at the end of year two;is $__________ (Round to the nearest cent.);The balance in;the account at the end of year three;is $__________ (Round to the nearest cent.);The final bank;balance in (c) is __________ the bank balance from part (b). (Select the best answer.);A.;equal;to;B.;lower;than;C.;higher;than;9.;You;have just received a windfall from an investment you made in a friend?s;business. He will be paying you $49,024 at the end of this year, $98,048 at the;end of the following year, and $147, 072 at the end of the year after that;(three years from today). The interest rate is 6.4% per year.;a.;The;present value of your windfall is $__________ (Round to the nearest dollar.);b.;The;future value of your windfall in three years (on the date of the last payment);is $__________ (Round to the nearest;dollar.);10.;You have an investment opportunity that;requires an initial investment of $7,500 today and will pay $11,500 in one;year. The internal rate of return (IRR) of this opportunity is $__________%. (Round to the nearest integer.)*******************************************************************************MBA570_Homework_3;Instructions: Either type or;write your answers directly on this document and submit the completed;assignment to your ESO. Show your work;for the calculations. If you use additional documents for the calculations;label them with your name and course number (MBA 570) and submit them as well.;Each question is worth 10 points.;1.;You;have been offered a very long-term investment opportunity. You can invest;$1,100 today and expect to receive $128,000 in 40 years. Your cost of capital;for this (very risky) opportunity is 16%.;a.;The;IRR of this investment opportunity is __________ %. (Round to one decimal place.);The IRR rule says that you __________. (Select;the best answer.);A.;should;not invest;B.;should;be indifferent;C.;should;invest;b.;The;NPV of this investment opportunity is __________ %. (Round to the nearest cent.);The NPV rule says that you __________. (Select;the best answer.);A.;should;not invest;B.;should;be indifferent;C.;should;invest;2.;You;are a real estate agent thinking of placing a sign advertising your services at;a local bus stop. The sign will cost $10,000 and will be posted for one year.;You expect that it will generate additional revenue of $1,900 a month. The;payback period is __________ months. (Round;to two decimal places.);3.;You;are considering making a movie. The movie is expected to cost $10.5 million;upfront and take a year to make $4.9 million in the year it is released (end of;year 2) and $1.7 million for the following four years (end of years 3 through;6).;a.;The;payback period of this investment is __________ years. (Round up to nearest integer.);b.;If;you require a payback period of two years, would you make this movie? (Enter yes or no.);c.;If;the cost of capital is 10.3%, the NPV is $__________ million. (Round to two decimal places.);4.;AOL;is considering two proposals to overhaul its network infrastructure. They have;two bids. The first bid from Huawei will require a $15 million upfront;investment and will generate $20 million in savings for AOL each year for the;next three years. The second bid from Cisco requires an $81 million upfront;investment and will generate $60 million in savings each year for the next;three years.;a.;What;is the IRR for AOL associated with;each bid?;The IRR;associated with the bid from Huawei is __________ %. (Round to one decimal place.);The IRR associated with the bid from Cisco;is __________ %. (Round to one decimal;place.);b.;If;the cost of capital for this investment is 14%, what is the NPV for each bid?;The NPV for Huawei?s bid is $__________ million.;(Round to two decimal places.);The NPV for Cisco?s bid is $;million. (Round to two decimal places.);c.;Suppose;Cisco modifies its bid by offering a lease contract instead. Under the terms of;the lease, AOL will pay $26 million upfront, and $35 million per year for the;next three years. AOL?s savings will be the same as with Cisco?s original bid.;The IRR of the Cisco bid is now;%. (Round to one decimal;place.);The new NPV is $__________ million. (Round to two decimal places.);d.;AOL;should;A. choose Huawei.;B. choose Cisco without lease.;C. choose Cisco with lease.;D. take none of the bids.;5.;Natasha?s;Flowers, a local florist, purchases fresh flowers each day at the local flower;market. The buyer has a budget of $1,000 per day to spend. Different flowers;have different profit margins, and also a maximum amount the shop can sell.;Based on past experience the shop has estimated the following NPV for;purchasing each type;NPV per bunch;Cost per bunch;Max. bunches;Roses;$2;$20;25;Lilies;$10;$29;10;Pansies;$6;$30;10;Orchids;$21;$80;5;(Select based on;descending order of their profitability-index values. Round the investment;amounts to the nearest integer.);The;combination of flowers Natasha?s Flowers should purchase each day is (select one of the three for each);$;of (roses, pansies, lilies) Select one of;the three.;$;of (orchids, pansies, lilies) Select one;of the three.;$;of (lilies, orchids, pansies) Select one;of the three.;6.;Pisa;Pizza, a seller of frozen pizza, is considering introducing a healthier version;of its pizza that will be low in cholesterol and contain no trans fats. The;firm expects that sales of the new pizza will be $21 million per year. While;many of these sales will be to new customers, Pisa Pizza estimates that 46%;will come from customers who switch to the new, healthier pizza instead of;buying the original version.;a.;Assuming;customers will spend the same amount on either version, the incremental sales;associated with introducing the new pizza are $__________ million. (Round to the nearest integer.);b.;Suppose;that 59% of the customers who will switch from Pisa Pizza?s original to its;healthier pizza will switch to another brand if Pisa Pizza does not introduce a;healthier pizza. In this case, the incremental sales associated with;introducing the new pizza are $__________ million. (Round to the nearest integer.);7.;Cellular;Access Inc. is a cellular telephone service provider that reported net;operating profit after tax (NOPAT) of $259 million for the most recent fiscal;year. The firm had depreciation expenses of $128 million, capital expenditures;of $152 million, and no interest expenses. Working capital increased by $12;million. The free cash flow for Cellular Access for the most recent fiscal year;is $__________ million. (Round to the;nearest million.);8.;Castle;View Games would like to invest in a division to develop software for video;games. To evaluate this decision, the firm first attempts to project the;working capital needs for its operation. Its chief financial officer has;developed the following estimates (in millions of dollars);Year 1;Year 2;Year 3;Year 4;Year 5;Cash;7;12;14;15;16;Accounts;receivable;18;22;23;22;25;Inventory;4;9;10;12;16;Accounts;payable;16;19;25;28;32;Assuming that Castle View currently does not have any working capital invested;in this division, calculate the cash flows associated with the changes in;working capital for the first five years of this investment. (Note: Enter decreases as negative numbers.);a.;The;change in working capital for year 1 is $__________ million. (Round to the nearest million.);b.;The;change in working capital for year 2 is $__________ million. (Round to the nearest million.);c.;The;change in working capital for year 3 is $__________ million. (Round to the nearest million.);d.;The;change in working capital for year 4 is $__________ million. (Round to the nearest million.);e.;The;change in working capital for year 5 is $__________ million. (Round to the nearest million.);9.;Markov;Manufacturing recently spent $12 million to purchase some equipment used in the;manufacturing of disk drives. The firm expects that this equipment will have a;useful life of five years, and its marginal corporate tax rate is 39%. The;company plans to use straight-line depreciation.;a.;The;annual depreciation expense associated with this equipment is $__________ million.;(Round to two decimal places.);b.;The;annual depreciation tax shield is $__________ million. (Round to two decimal places.);c.;Rather;than straight-line depreciation, suppose Markov will use the MACRS depreciation;for five-year property. Calculate the depreciation tax shield each year for;this equipment under the following accelerated depreciation schedule;MACRS;Depreciation Table;Year;5 Years;1;20.00%;2;32.00%;3;19.20%;4;11.52%;5;11.52%;6;5.76%;The depreciation tax shield for year 0;is $__________ million. (Round to two;decimal places.);The depreciation tax shield for year 1;is $__________ million. (Round to two decimal;places.);The depreciation tax shield for year 2;is $__________ million. (Round to two;decimal places.);The depreciation tax shield for year 3;is $__________ million. (Round to two;decimal places.);The depreciation tax shield for year 4;is $__________ million. (Round to two;decimal places.);The depreciation tax shield for year 5;is $__________ million. (Round to two;decimal places.);d.;If;Markov has a choice between straight-line and MACRS depreciation schedules, and;its marginal corporate tax rate is expected to remain constant, which should it;choose? Why?;A.;With;MACRS, the firm receives the depreciation tax shields sooner, thus, MACRS leads;to a higher NPV of Markov?s FCF.;B.;With;straight-line depreciation, the firm?s depreciation expenses are lower;initially, leading to higher earnings, thus, straight-line depreciation leads;to a higher NPV of Markov?s FCF.;C.;With;either method, the total depreciation tax shield is the same, therefore, it does;not matter which method is used.;D.;None;of the above.;e.;How;might your answer to part (d) change if Markov anticipates that its marginal;corporate tax will change substantially over the next five years?;A.;Markov;may be better off using the straight-line method if it expects its tax rate to;decrease substantially in later years.;B.;Markov;may be better off using the straight-line method if it expects its tax rate to;increase substantially in later years.;C.;Even;if its tax rate is expected to change, Markov is better off using MACRS;depreciation rather than straight-line depreciation.;D.;None;of the above.;10.;Bauer;Industries is an automobile manufacturer. Management is currently evaluating a;proposal to build a plant that will manufacture lightweight trucks. Bauer plans;to use a cost of capital of 12% to evaluate this project. Based on extensive;research, it has prepared the following free cash flow projections (in millions;of dollars);Free Cash Flow;Year 0;Years 1-9;Year 10;Revenues;100.00;100.00;? Manufacturing expenses (other than;depreciation);? 32.00;? 32.00;? Marketing expenses;? 8.00;? 8.00;? Depreciation;? 14.00;? 14.00;=;EBIT;45.60;45.60;? Taxes (35%);? 15.96;? 15.96;=;Unlevered net income;29.64;29.64;+;Depreciation;? Increases in net working capital;? 5.00;? 5.00;? Capital expenditures;? 144.00;+;Continuation value;12.00;=;Free cash flow;? 144.00;39.04;51.04;a.;For;this base case scenario, the NPV of the plant to manufacture lightweight trucks;is $__________ million. (Round to two;decimal places.);b.;Based;on input from the marketing department, Bauer is uncertain about its revenue;forecast. In particular, management would like to examine the sensitivity of;the NPV to the revenue assumptions.;The NPV of this project if revenues are 10% higher than forecast is;$__________. (Round to two decimal places.);The NPV of this project if revenues are 10% lower than forecast is;$__________. (Round to two decimal places.)*********************************************************************** MBA570_Homework_4;Instructions: Either type or;write your answers directly on this document and submit the completed;assignment to your ESO. Show your work;for the calculations. If you use additional documents for the calculations;label them with your name and course number (MBA 570) and submit them as well.;Each question is worth 10 points.;1.;A;5-year bond with a face value of $1,000 has a coupon rate of 10.50%, with;semi-annual payments.;a.;The;coupon payment for this bond is $__________. (Round to two decimal places.);b.;Look;at the timeline below and fill in the correct cash flows for the timeline;(note: periods are in six-month intervals).;Period 0 1 2 9;10;Cash flow CF1CF2CF9CF10;Compute;the following cash flows. (Round to two;decimal places.);CF1;is $__________.;CF2;is $__________.;CF9;is $__________.;CF10;is $__________.;2.;The;following table summarizes prices of various default free zero coupon bonds;(expressed as a percentage of face value);Maturity (years);1;2;3;4;5;Price (per $100 face value);$96.22;$91.69;$87.15;$82.46;$77.33;a.;Compute;the yield to maturity for each bond.;Yield on the 1-year bond is __________% (Round;to two decimal places.);Yield on the 2-year bond is __________% (Round to two decimal places.);Yield on the 3-year bond is __________% (Round to two decimal places.);Yield on the 4-year bond is __________% (Round to two decimal places.);Yield on the 5-year bond is __________% (Round to two decimal places.);b.;Is;the following graph showing the zero-coupon yield curve? (Enter yes or no.);7;6.5;6;5.5;5;4.5;4;3.5;3;2.5;0 1;2;3;4 5;c.;The;above yield curve is;A. upward sloping.;B. downward sloping.;C. flat.;3.;Suppose;a 10-year, $1,000 bond with a 7% coupon rate and semiannual coupons is trading;for a price of $1,180.46.;a.;The;bond?s yield to maturity (expressed as an APR with semiannual compounding is __________%.;(Round to two decimal places.);b.;If;the bond?s yield to maturity changes to 8% APR, the price of the bond would be;$__________. (Round to nearest cent.);4.;Assume;the zero-coupon yields on default-free securities are as summarized in the;following table;Maturity;1 year;2 years;3 years;4 years;5 years;Zero-coupon yields;5.50%;6.00%;6.60%;6.80%;7.00%;a.;The;price of a three-year, default-free security with a face value of $1,000 and an;annual coupon rate of 7% is $__________. (Round;to two decimal places.);b.;The;yield to maturity for this bond is __________%. (Round to two decimal places.);5.;The;following table summarizes yields to maturity on several 1-year, zero-coupon;securities;Security;Yield;Treasury;2.94%;AAA Corporate;3.42%;BBB Corporate;3.69%;B Corporate;4.26%;a.;The;price (expressed as a percentage of the face value) of a 1-year, zero-coupon;corporate bond with a AAA rating and a face value of $1,000 is $__________. (Round to the nearest cent.);b.;The;credit spread on AAA-rated corporate bonds is __________%. (Round to two decimal places.);c.;The;credit spread on B-rated corporate bonds is __________%. (Round to two decimal places.);d.;How;does the credit spread change with the bond rating? Why?;A.;The;credit spread decreases as the bond rating increases, because lower rated bonds;are riskier.;B.;The;credit spread increases as the bond rating falls, because lower rated bonds are;riskier.;C.;The;credit spread decreases as the bond rating falls, because lower rated bonds are;riskier.;D.;The;credit spread increases as the bond rating increases, because higher rated;bonds are riskier.;6.;Anle;Corporation has a current price of $22, is expected to pay a dividend of $1 in;one year, and its expected price right after paying that dividend is $27.;a.;Anle?s;expected dividend yield is __________%. (Round;to two decimal places.);b.;Anle?s;expected capital gain rate is __________%. (Round;to two decimal places.);c.;Anle?s;cost of capital is __________%. (Round to;two decimal places.);7.;Summit;Systems will pay a dividend of $1.62 this year. If you expect Summit?s dividend;to grow by 6.6% per year, and its equity cost of capital is 11.7%, its price;per share is $__________. (Round to the;nearest cent.);8.;Heavy;Metal Corporation is expected to generate the following cash flows over the;next five years;Year;1;2;3;4;5;FCF ($ million);51.3;66.5;79.9;73.1;83.3;After that, the free cash flows are expected to grow at the industry average of;4.2% per year. Using the discounted free cash flow model and a weighted average;cost of capital of 14.8%;a.;The;enterprise value will be $__________ million. (Round to two decimal places.);b.;If;Heavy Metal has no excess cash, debt of $297 million, and 36 shares outstanding;its stock price per share will be $__________. (Round to two decimal places.);9.;You;read in the paper that Summit Systems will pay a dividend of $1.00 this year.;At that point you expect Summit?s dividend to grow by 5.5% per year. Today you;read in the paper that Summit Systems has revised its growth prospects and;expects its dividends to grow at a rate of 4.0% per year forever. If the firm?s;equity cost of capital is 10.0%;a.;The;value of a share of Summit Systems stock based on the original expected dividend;growth of 5.5% per year is $__________. (Round;to the nearest cent.);b.;If;you tried to sell your Summit Systems stock after reading this news, the price;you would likely get for a share is $__________. (Round to the nearest cent.);Why;is this so?;A.;You;would receive $22.22 if you act very quickly because it takes a day or two to;incorporate the information about the new growth rate.;B.;You;would receive $16.67 because markets are efficient and would incorporate the;information about the new growth rate immediately.;C.;You;would receive $22.22 because when you bought the stock, the dividend growth;rate was still 5.5%.;D.;You;would receive a price between $16.67 and $22.22 because you should get a blend;of the old and new dividend growth rates.;10.;In;early 2009, Coca-Cola Company had a share price of $43.24. Its dividend was;$1.24, and you expect Coca-Cola to raise this dividend by approximately 6.7%;per year in perpetuity.Note: For simplicity, assume that all;dividends are paid at the end of the year.;a.;If;Coca-Cola?s equity cost of capital is 8.2%, based on your estimate of the;dividend growth rate, the price per share you would expect would be $__________.;(Round to the nearest cent.);b.;Given;Coca-Cola?s share price, you would conclude that its future dividend growth;rate should be __________%. (Round to one decimal place.);*************************************************************************MBA570_Homework_5;Instructions: Either type or;write your answers directly on this document and submit the completed;assignment to your ESO. Show your work;for the calculations. If you use additional documents for the calculations;label them with your name and course number (MBA 570) and submit them as well.;Each question is worth 10 points.;1.;You;have found three investment choices for a one-year deposit: 11% APR compounded;monthly, 11% APR compounded annually, and 9% APR compounded daily. Assuming;there are 365 days in the year;a.;The;EAR for the first investment choice is;%. (Round to three decimal;places.);b.;The;EAR for the second investment choice;is __________%. (Round to three decimal;places.);c.;The;EAR for the third investment choice;is __________%. (Round to three decimal;places.);2.;Your;son has been accepted into college. This college guarantees that your son?s;tuition will not increase for the four years he attends college. The first;$9,000 tuition payment is due in six months. After that, the same payment is;due every six months until you have made a total of eight payments. The college;offers a bank account that allows you to withdraw money every six months and;has a fixed APR of 9% (semiannual) guaranteed to remain the same over the next;four years.;If you intend to make no further deposits and would like to make all of the;tuition payments from this account, leaving this account empty when the last;payment is made, the amount you need to deposit today is $__________. (Round to the nearest cent.);3.;Capital;One is advertising a 60-month, 5.99% APR motorcycle loan. If you need to borrow;$11,000 to purchase your dream Harley Davidson, your monthly payment would be;$__________. (Round to two decimal places.);4.;If;the rate of inflation is 4.9%, the nominal rate necessary for you to earn a;3.4% real interest rate on your investment is __________%. (Round to one decimal place.);5.;Consider;a project that requires an initial investment of $96,000 and will produce a;single cash flow of $147,000 in 5 years.;a.;If;the 5-year interest rate is 5.2% (EAR), the NPV in this case is $__________. (Round to the nearest dollar.);b.;If;the 5-year interest rate is 10.2% (EAR), the NPV in this case is $__________. (Round to the nearest dollar.);c.;The;highest 5-year interest rate (EAR) such that this project is still profitable is;%. (Round to one decimal place.);6.;Wal-Mart?s;five-year borrowing rate is 3.23% and GE Capital?s is 9.81%. Which would you;prefer? $500 from Wal-Mart paid today or a promise that the firm will pay you;$700 in five years? Which would you choose if GE offered you the same;alternative?;The PV of the loan from GE Capital is $__________. (Round to the nearest cent.);The PV of the;loan from Wal-Mart is $__________. (Round;to the nearest cent.);You would;prefer;A.;$700;from GE Capital in 5 years and $500 from Wal-Mart today.;B.;$500;from GE Capital today and $500 from Wal-Mart today.;C.;$500;from GE Capital today and $700 from Wal-Mart in 5 years.;D.;$700;from GE Capital in 5 years and $700 from Wal-Mart in five years.;7.;Your;best taxable investment opportunity has an EAR of 5.8%. Your best tax-free;investment opportunity has an EAR of 2.5%. If your tax rate is 32%, the taxable / tax-free (select one) investment opportunity has the higher interest rate;with __________%. (Round to one decimal;place.);8.;Consider;the price paths of the following two stocks over six time periods;1;2;3;4;5;6;Stock;1;13;15;17;15;16;19;Stock;2;13;9;6;14;13;16;Neither stock pays dividends. Assume you are an investor with the disposition;effect and you bought at time 1 and right now, it is time 3. Assume throughout;this question that you do no trading (other than what is specified) in these;stocks.;a.;Which;stock(s) would you be inclined to sell? Which would you be inclined to buy?;Which would you be inclined to hold onto? You would sell / buy/ hold stock 1 and sell;/ buy / hold stock 2. (Select one for;each stock.);b.;How;would your answer change if right now is time 6? You would sell / buy/ hold stock 1 and sell;/ buy / hold stock 2. (Select one for;each stock.);c.;What;if you bought at time 3 instead of time 1 and today is time 6? You would sell / buy/ hold stock 1 and sell / buy / hold stock 2. (Select one for each stock.);d.;What;if you bought at time 3 instead of time 1 and today is time 5? You would sell / buy/ hold stock 1 and sell / buy / hold stock 2. (Select one for each stock.);9.;Each;of the six firms in the table below is expected to pay the listed dividend;payment every year in perpetuity.;Firm;Dividend ($;million);Cost of;Capital (%/year);S1;9.8;8.4;S2;9.8;12.9;S3;9.8;14.8;B1;98.0;8.4;B2;98.0;12.9;B3;98.0;14.8;a.;Using;the cost of capital in the table;Firm S1 market value is $__________ million. (Round to one decimal place.);Firm S2 market value is $__________ million. (Round to one decimal place.);Firm S3 market value is $__________ million. (Round to one decimal place.)Firm B1 market value is $__________ million. (Round to one decimal place.);Firm B2 market value is $;million. (Round to one decimal place.)Firm B3 market value is $__________ million. (Round to one decimal place.);b.;Rank;the three S firms by their market values. For a self-financing portfolio that;went long on the firm with the largest market value and shorted the firm with;the lowest market value, the expected return of a self-financing portfolio is;%. (Round to one decimal;place.);Repeat with the B firms. The expected return of a self-financing portfolio is;%. (Round to one decimal;place.);c.;Rank;all six firms by their market values. For a self-financing portfolio that went;long on the firm with the largest market value and shorted the firm with the;lowest market value, the expected return of a self-financing portfolio is;%. (Round to one decimal;place.);d.;Repeat;part (c) but rank the firms by the dividend yield instead of the market value.;The expected return of a self-financing portfolio is __________%. (Round to one decimal place.);10.;Consider;the following stocks, all of which will pay a liquidating dividend in a year;and nothing in the interim.;Market;Capitalization;($ million);Expected;Liquidating Dividend;($ million);Beta;Stock A;908;1,000;0.74;Stock B;840;1,000;1.54;Stock C;841;1,000;1.37;Stock D;879;1,000;0.76;a.;Calculate;the expected return for each stock.;The expected return of Stock A is __________%. (Round to two decimal places.);The expected return of Stock B is __________%. (Round to two decimal places.)The expected return of Stock C is __________%. (Round to two decimal places.)The expected return of Stock D is __________%. (Round to two decimal places.);b.;The;correlation between the expected return and market capitalization of the stocks;is __________. (Round to five decimal places.)

Paper#48076 | Written in 18-Jul-2015

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