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##### Accounting

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1. Below you are presented with hypothetical stock prices for two different stocks over a ten year period.;a. Calculate the yearly returns for both stocks;Year Stock Price A Yearly Return (%) Stock Price B Yearly Return (%);1 \$ 100 \$ 65;2 \$ 112 12.0% \$ 70;3 \$ 118 \$ 79;4 \$ 106 \$ 83;5 \$ 110 \$ 80;6 \$ 91 \$ 95;7 \$ 105 \$ 94;8 \$ 125 \$ 108;9 \$ 155 \$ 120;10 \$ 185 \$ 125;b. Calculate the average yearly returns;c. Calculate the standard deviation;d. Which if these stocks was less risky? Explain;2 Assume the risk-free rate is 3.5%, the beta of a company is 0.8 and the market-level return is 12%.;a. Provide the CAPM equation and use it to solve for the required return of the company's equity.;CAPM Equation;Required Return;b. Now assume the beta is 1.6. What is the required return of the company's equity?;Required Return;c. What happens as beta increases?;3. Nessumsar compay develops educational materials. It has a pre-tax cost of debt of 8.0% and a cost of equity of 11.0%. It has a marginal tax rate of 40%, \$50 million of debt and \$100 million of equity.;a. Calculate the company's overall cost of capital.;Cost of Debt;Pre-tax Cost of Debt;Tax Rate;After-tax Cost of Debt 0.00%;Cost of Equity;Cost of Equity;Weights;Dollar Value (\$ in millions) % Amount;Debt;Equity;Total \$ - 0.0%;Cost of Capital;Formula;Calculation

Paper#76303 | Written in 18-Jul-2015

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