If we hold 44% in the risky market portfolio, M, and 56% in the risk-free
an asset with a risk-free rate of 2%, the expected return on the market of
10% and the standard deviation of the market is 3%. Find the expected
return on the portfolio ( ERp) and the standard deviation of the portfolio (σp)

the answer is ERp=5.52%, σp= 1.32%. Could you please in solution (How to Solve)????

The Bigbee Bottling Company is contemplating the replacement of one of its bottling machines with a newer and more efficient one. The old machine has a book value of $550,000 and a remaining useful life of 5 years. The firm does not expect to realize any return from scrapping the old machine in 5 years, but it can sell it now to another firm in the industry for $295,000. The old machine is being depreciated by $110,000 per year, using the straight-line method.

The new machine has a purchase price of $1,200,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $145,000. The applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. It is expected to economize on electric power usage, labor, and repair costs, as well as to reduce the number of defective bottles. In total, an annual savings of $230,000 will be realized if the new machine is installed. The company's marginal tax rate is 35%, and it has a 12% WACC.

1. What initial cash outlay is required for the new machine? Round your answer to the nearest dollar. Negative amount should be indicated by a minus sign.
   $
   
2. Calculate the annual depreciation allowances for both machines and compute the change in the annual depreciation expense if the replacement is made. Round your answers to the nearest dollar.

   Year	Depreciation Allowance, New	Depreciation Allowance, Old	Change in Depreciation
   1	$	$	$
   2
   3
   4
   5

3. What are the incremental net cash flows in Years 1 through 5? Round your answers to the nearest dollar.

   Year 1	Year 2	Year 3	Year 4	Year 5
   $	$	$	$	$

4. Should the firm purchase the new machine?
   -Select-YesNo

***Please show the math! Thank you!

Assume that security returns are generated by the single-index model,

R_i = α_i + β_iR_M + e_i
where R_i is the excess return for security i and R_M is the market’s excess return. The risk-free rate is 3%. Suppose also that there are three securities A, B, and C, characterized by the following data:

a. If σ_M = 20%, calculate the variance of returns of securities A, B, and C.

b. Now assume that there are an infinite number of assets with return characteristics identical to those of A, B, and C, respectively. What will be the mean and variance of excess returns for securities A, B, and C? (Enter the variance answers as a percent squared and mean as a percentage. Do not round intermediate calculations. Round your answers to the nearest whole number.)

Yumi's grandparents presented her with a gift of $20,000 when she was 9 years old to be used for her college education. Over the next 8 years, until she turned 17, Yumi's parents had invested her money in a tax-free account that had yielded interest at the rate of 3.5%/year compounded monthly. Upon turning 17, Yumi now plans to withdraw her funds in equal annual installments over the next 4 years, starting at age 18. If the college fund is expected to earn interest at the rate of 4%/year, compounded annually, what will be the size of each installment? (Assume no interest is accrued from the point she turns 17 until she makes the first withdrawal

Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.20 −4 % 19 % Normal economy 0.40 20 % 9 % Boom 0.40 26 % 8 % a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms? No Yes b. Calculate the expected rate of return and standard deviation for each investment. (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.)

Consider the following scenario analysis:

a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms?

• No

• Yes

b. Calculate the expected rate of return and standard deviation for each investment. (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.)

Fincher Manufacturing (FM) is considering two mutually exclusive capital investments to
utilize an idle factory owned by the firm. The first alternative calls for manufacturing tundratorque drill bits required for the extraction of rare earth metals from the frozen tundra of
Greenland. This proposal would generate after-tax cash inflows of $12 million per year
beginning in one year (at date 1). Due to the current scarcity of rare earth metals, the yearly
cash flows for this project are expected to grow by 5 percent per year in perpetuity from date
1 on. The second alternative calls for producing the Polycrystalline Diamond Compact bits
frequently used in horizontal drilling operations. Alternative two will generate constant
yearly after-tax cash flows of $20 million beginning in one year (at date 1) and remaining
constant in perpetuity. Assuming each project requires an initial investment of $120 million:
a. Which capital investment project has the greater IRR?

b. Which project has a greater NPV if Fincher’s cost of capital is 10 percent.

c. Determine the range of estimates for Fincher’s cost of capital for which investing in the
project having the greater IRR maximizes the value of the firm.

Quincy Durant, who had his 75th birthday last month, has been offered a reverse mortgage by the Selleck National Bank. The terms of the reverse mortgage call for Mr. Durant to receive a fixed monthly income payment over his remaining 10-year life expectancy, with the monthly income payment being determined by setting the future value of the monthly payments to be received by Mr. Durant equal to 90 percent of the current $400,000 value of his home. At the end of 10 years Mr. Durant expects to sell his home and repay these monthly payments along with the accrued interest on his monthly borrowings over the previous 10 years. Assuming that that the interest rate on the reverse mortgage is 4.20 percent, compare the monthly amount that Mr. Durant will receive from the reverse mortgage with the monthly payment for a conventional 10-year mortgage loan in the amount of $360,000 with a monthly compounded interest rate of 4.20 percent.?

Explain how increased technology has aided sports organizations in minimizing expenses.

The Neal Company wants to estimate next year's return on equity (ROE) under different financial leverage ratios. Neal's total capital is $16 million, it currently uses only common equity, it has no future plans to use preferred stock in its capital structure, and its federal-plus-state tax rate is 40%. The CFO has estimated next year's EBIT for three possible states of the world: $4.4 million with a 0.2 probability, $3.2 million with a 0.5 probability, and $0.3 million with a 0.3 probability. Calculate Neal's expected ROE, standard deviation, and coefficient of variation for each of the following debt-to-capital ratios. Do not round intermediate calculations. Round your answers to two decimal places at the end of the calculations.

Debt/Capital ratio is 0.

RÔE = % ? = % CV =

Debt/Capital ratio is 10%, interest rate is 9%.

RÔE = % ? = % CV =

Debt/Capital ratio is 50%, interest rate is 11%.

RÔE = % ? = % CV =

Debt/Capital ratio is 60%, interest rate is 14%.

RÔE = % ? = % CV =

Suppose an investor, Erik, is offered the investment opportunities described in the table below. Each investment costs $1,000 today and provides a payoff, also described below, one year from now.

If Erik is risk averse, which investment will he prefer?

The investor will choose option 1.

The investor will choose option 2.

The investor will choose option 3.

The investor will be indifferent toward these options.

In contrast to his brother Erik, Devin is a risk lover (or exhibits risk seeking behavior). Which of the following statements is true about Devin?

Everything else remaining constant, Devin will prefer option 3.

Everything else remaining constant, Devin will prefer option 2.

Everything else remaining constant, Devin will prefer option 1.

None of these options is preferred.

Brandon is an analyst at a wealth management firm. One of his clients holds a $5,000 portfolio that consists of four stocks. The investment allocation in the portfolio along with the contribution of risk from each stock is given in the following table:

Brandon calculated the portfolio’s beta as 0.930 and the portfolio’s expected return as 9.1150%.

Brandon thinks it will be a good idea to reallocate the funds in his client’s portfolio. He recommends replacing Atteric Inc.’s shares with the same amount in additional shares of Transfer Fuels Co. The risk-free rate is 4%, and the market risk premium is 5.50%.

According to Brandon’s recommendation, assuming that the market is in equilibrium, how much will the portfolio’s required return change? (Note: Do not round your intermediate calculations.)

1.1935 percentage points

0.7508 percentage points

0.9625 percentage points

1.1069 percentage points

Analysts’ estimates on expected returns from equity investments are based on several factors. These estimations also often include subjective and judgmental factors, because different analysts interpret data in different ways.

Suppose, based on the earnings consensus of stock analysts, Brandon expects a return of 9.65% from the portfolio with the new weights. Does he think that the required return as compared to expected returns is undervalued, overvalued, or fairly valued?

Overvalued

Fairly valued

Undervalued

Suppose instead of replacing Atteric Inc.’s stock with Transfer Fuels Co.’s stock, Brandon considers replacing Atteric Inc.’s stock with the equal dollar allocation to shares of Company X’s stock that has a higher beta than Atteric Inc. If everything else remains constant, the portfolio’s risk would ----- .