4.) You have ​$55,000. You put 15​% of your money in a stock with an expected return of 13​%, ​$38,000 in a stock with an expected return of 15​%, and the rest in a stock with an expected return of 23​%. What is the expected return of your​ portfolio?

12.) The​ risk-free rate is 4.9​% and you believe that the​S&P 500's excess return will be 8.5​% over the next year. If you invest in a stock with a beta of 1.4 ​(and a standard deviation of 30​%), what is your best guess as to its expected excess return over the next​ year?

13.) Suppose the​ risk-free return is 4.7% and the market portfolio has an expected return of 10.1% and a standard deviation of 16%. Johnson​ & Johnson Corporation stock has a beta of 0.30. What is its expected​ return?

16.) Suppose Autodesk stock has a beta of 2.30​, whereas Costco stock has a beta of 0.68. If the​ risk-free interest rate is 6.5% and the expected return of the market portfolio is 14.0%​, what is the expected return of a portfolio that consists of 70 % Autodesk stock and 30 % Costco​ stock, according to the​ CAPM?

After discovering a gold vein in the Colorado Mountains, CTC Mining Corporation must decide to go ahead and develop the deposit. The most cost effective method of mining gold is the sulfuric acid extraction, a process that could result in environmental damage. To begin mining CTC must spend $900,000 for new mining equipment and pay $165,000 for its installation. The mining operation will net the firm an estimated $350,000 per year and the vein is expected to last for five years. CTC’s has no debt, preferred stock of $250,000 with annual dividends of $23,750. And $2.5 million in common stock with a cost of 15%. Assume that the cash flows occur at the end of each year.

a. What is the Cost of Capital that should be used on this project.

b. What is the project’s NPV, PI, IRR, PB, 7 DPB?

c. Assuming environmental impacts are not considered, should the project be undertaken?

d. How should environmental effects be considered when evaluating this or any other project? How might these concepts affect the decision to invest?

Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $24.00 million. The plant and equipment will be depreciated over 10 years to a book value of $2.00 million, and sold for that amount in year 10. Net working capital will increase by $1.34 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $8.73 million per year and cost $1.62 million per year over the 10-year life of the project. Marketing estimates 18.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 30.00%. The WACC is 14.00%. Find the NPV (net present value).

Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $27.00 million. The plant and equipment will be depreciated over 10 years to a book value of $2.00 million, and sold for that amount in year 10. Net working capital will increase by $1.06 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.09 million per year and cost $2.21 million per year over the 10-year life of the project. Marketing estimates 15.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 26.00%. The WACC is 14.00%. Find the IRR (internal rate of return).

Thanks!

Davis Industries must choose between a gas powered or an electric powered forklift truck for moving materials in its factory. The electric powered truck will cost more, but it will be less expensive to operate; it will cost $22,000 whereas the gas powered will cost $17,500. Davis’s pretax cost of debt 8% and their cost of equity is 18%. The target capital structure is 40% debt and 60% equity. The company’s tax rate is 22%. The life of both trucks is expected to be six years. The net cash inflows for the electric powered truck will be $6,290 per year and those for the gas powered truck will be $5,000 per year.

Calculate the WACC for the project and the NPV, PI, IRR, PB, DPB for each type of truck and decide which to recommend.

A company project has an initial cost of $40,000, expected net cash flows of $9,000 per year for 7 years. The company has a target capital structure of 10% short term debt at an interest rate of 6.0%, 50% long term debt at an interest rate of 9.0%, and 40% equity with a cost of 18%. The company’s tax rate is 28%.

a. What is the WACC to be used when evaluating this project?

b. What is the projects NPV, IRR, PB, DPB?

c. What is the projects PI?

Suppose you are interested in investigating the option price efficiency of Altria Group, Inc. (MO) listed options. You look at options expiring in January of 2020, which is close enough to one quarter for your purposes. You observe the following prices listed for the options (below). Are the options efficiently priced, how do you know (2 pts)? Hint look at a box spread with strikes at $60 and $70. If the options are not priced correctly, ignoring trading costs, what is the arbitrage profits that could be made from the trade? (2 pts) The risk-free rate is 1.5%

Strike Last Price

60.00 4.90

62.50 3.47

65.00 2.35

67.50 1.50

70.00 0.99

Puts

60.00 2.20

62.50 3.18

65.00 5.20

67.50 8.05

70.00 9.82

FoodMarkets Inc. is a grocery chain. It reported a debt to capital ratio of 10%, and a return on capital of 25%, on a book value of capital invested of $1 billion. Assume that the firm has significant operating leases. If the operating lease expense in the current year is $100 million and the present value of lease commitments is $750 million, estimate the FoodMarket's debt to capital and return on capital.

Tao Wang is considering leasing space for five years for his Chinese Buffet food establishment. He has three lease options as follows: 1. Fixed lease options: Pay $5,000 per month for sixty months beginning on the first day of the five-year lease. Pay $55,000 per year on the first day of each year for five years. 2. Mixed lease option: Pay $25,000 on the first day of each year and 3 percent of annual sales on the last day of each year for five years. The forecasted annual sales are $1,400,000 for the first year, and sales are expected to increase by 5 percent each year. Assume Tao’s cost of capital is 10 percent. Determine the annual cash rents under each option.

A stock's current price is 62. A call option with exercise price of 79 and maturity of 3 months is currently priced at $ 16.

What is the option's time value?

Carnes Cosmetics Co.'s stock price is $39, and it recently paid a $2.25 dividend. This dividend is expected to grow by 16% for the next 3 years, then grow forever at a constant rate, g; and rs = 15%. At what constant rate is the stock expected to grow after Year 3? Do not round intermediate calculations. Round your answer to two decimal places.

Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce net cash flows of $30 million per year. Plane B has a life of 10 years, will cost $132 million, and will produce net cash flows of $27 million per year. Shao plans to serve the route for only 10 years. Inflation in operating costs, airplane costs, and fares are expected to be zero, and the company's cost of capital is 11%. By how much would the value of the company increase if it accepted the better project (plane)? Do not round intermediate calculations. Enter your answer in millions. For example, an answer of $1.234 million should be entered as 1.234, not 1,234,000. Round your answer to three decimal places.

$   million

What is the equivalent annual annuity for each plane? Do not round intermediate calculations. Enter your answers in millions. For example, an answer of $1.234 million should be entered as 1.234, not 1,234,000. Round your answers to three decimal places.

Plane A: $   million

Plane B: $   million

Growth​ Company's current share price is $ 20.10 and it is expected to pay a $ 0.95 dividend per share next year. After​ that, the​ firm's dividends are expected to grow at a rate of 4.4 % per year. a. What is an estimate of Growth​ Company's cost of​ equity? b. Growth Company also has preferred stock outstanding that pays a $ 2.25 per share fixed dividend. If this stock is currently priced at $ 28.15​, what is Growth​ Company's cost of preferred​ stock? c. Growth Company has existing debt issued three years ago with a coupon rate of 6.1 %. The firm just issued new debt at par with a coupon rate of 6.4 %. What is Growth​ Company's cost of​ debt? d. Growth Company has 5.3 million common shares outstanding and 1.4 million preferred shares​ outstanding, and its equity has a total book value of $ 49.9 million. Its liabilities have a market value of $ 19.5 million. If Growth​ Company's common and preferred shares are priced as in parts ​(a​) and ​(b​), what is the market value of Growth​ Company's assets? e. Growth Company faces a 38 % tax rate. Given the information in parts ​(a​) through ​(d​), and your answers to those​ problems, what is Growth​ Company's WACC? ​Note: Assume that the firm will always be able to utilize its full interest tax shield.

A 13.35-year maturity zero-coupon bond selling at a yield to maturity of 8% (effective annual yield) has convexity of 164.2 and modified duration of 12.36 years. A 40-year maturity 6% coupon bond making annual coupon payments also selling at a yield to maturity of 8% has nearly identical modified duration—-12.30 years—-but considerably higher convexity of 272.9.

a. Suppose the yield to maturity on both bonds increases to 9%. What will be the actual percentage capital loss on each bond? What percentage capital loss would be predicted by the duration-with-convexity rule? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b. Suppose the yield to maturity on both bonds decreases to 7%. What will be the actual percentage capital gain on each bond? What percentage capital gain would be predicted by the duration-with-convexity rule? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Given what you’ve learned from personal experience, from your readings, or from others’ experiences, what advice would you give to someone about to purchase a new home? You can discuss practical matters, loan-related matters, etc.