The following are the monthly rates of return for Madison Cookies and for Sophie Electric during a six-month period:

Month Madison Cookies Sophie Electric

1 -0.06 0.05

2 0.04 -0.02

3 -0.07 -0.07

4 0.14 0.16

5 -0.03 -0.08

6 0.06 0.03

Compute the following. Do not round intermediate calculations. Round your answers to four decimal places.

A. Average monthly rate of return R̅i for each stock.

B. Standard deviation of returns for each stock.

C. Covariance between the rates of return.

D. The correlation coefficient between the rates of return.

E. Would these two stocks be good choices for diversification? Why or why not?

If a corporation has limited capital to use for project investment, but it has more projects than the available capital will support and these projects will earn above the cost of capital, should it ration capital (to do fewer projects) or borrow (to do all projects)? Explain your answer.

1. Suppose a stock had an initial price of $69 per share, paid a dividend of $1.95 per share during the year, and had an ending share price of $53. Compute the percentage total return, the dividend yield, and the capital gains.

2. Suppose you bought a stock one year ago for $965.00. The stock sells for $935.00 today. The dividend is $100.

   1. a) What was your total dollar return on this investment over the past year?

   2. b) What was your total nominal rate of return on this investment over the past year?

   3. c) Fisher Effect: If the inflation rate last year was 5 percent, what was your total real rate of return on this investment?

3. 1. You've observed the following returns on Jason Corporation's stock over the past five years: 12 percent, -14 percent, 4 percent, 27 percent, and 7 percent.

      1. a) What was the average return on Jason's stock over this five-year period?

      2. b) What was the variance of Jason's returns over this period? The standard deviation?

if expected return is 14%. the dividend is to grow at the rate of 8% it currently sells for $50 per share. what is the current dividend per share. what is the dividend yield

(EAC) Brandy's Place has decided to purchase a new branding machine. Brandy will buy one of two machines. Each machine costs $1,500. Machine A has a four-year life, a salvage value of $1,000, and expenses of $475 per year. Machine B has a five-year life, a salvage value of $500, and expenses of $460 per year. Whichever machine is used, revenues for this project are $1,200 per year, and machines will be replaced at the end of their lives. Using straight-line depreciation to the salvage value, a tax rate of 35%, and a cost of capital of 20%, which machine should Brandy buy, and why?

You deposit $175,000 in a savings account. The APR (Annual Percentage Rate) is 6%. Calculate the following: a. Assuming that the interest is compounded once a year, what is the amount accumulated after ten years? b. Assuming that the interest is compounded every month, what is the amount accumulated after ten years? c. Assuming that the interest is compounded every day, what is the amount accumulated after ten years? d. What is the observed effect of compounding at a higher frequency on the amount of money accumulated? Explain.

an investment pays 2600 per year for the first 7 years, 5200 per year for the next 7 years and 7800 per year the following 10 years (all payments are at the end of each year). if the discount rate is 12.85% compounding quarterly, what is the fair price of the investment?

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How much weight do you have to invest in KLM in order to earn the least amount of risk possible, given the following data?

KLM's expected return is 12% and its standard deviation is 50%

FGH's expected return is 10% and its standard deviation is 40%

The two assets have a covariance of 0.1.

NPV AND IRR

A store has 5 years remaining on its lease in a mall. Rent is $2,000 per month, 60 payments remain, and the next payment is due in 1 month. The mall's owner plans to sell the property in a year and wants rent at that time to be high so that the property will appear more valuable. Therefore, the store has been offered a "great deal" (owner's words) on a new 5-year lease. The new lease calls for no rent for 9 months, then payments of $2,750 per month for the next 51 months. The lease cannot be broken, and the store's WACC is 12% (or 1% per month).

1. Should the new lease be accepted? (Hint: Be sure to use 1% per month.)
   
   -Select-YesNoItem 1
2. 
   
3. If the store owner decided to bargain with the mall's owner over the new lease payment, what new lease payment would make the store owner indifferent between the new and old leases? (Hint: Find FV of the old lease's original cost at t = 9; then treat this as the PV of a 51-period annuity whose payments represent the rent during months 10 to 60.) Round your answer to the nearest cent. Do not round your intermediate calculations.
   
   $
4. 
   
5. The store owner is not sure of the 12% WACC—it could be higher or lower. At what nominal WACC would the store owner be indifferent between the two leases? (Hint: Calculate the differences between the two payment streams; then find its IRR.) Round your answer to two decimal places. Do not round your intermediate calculations.
   
   %

New-Project Analysis

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $840,000, and it would cost another $21,000 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after 3 years for $571,000. The machine would require an increase in net working capital (inventory) of $15,000. The sprayer would not change revenues, but it is expected to save the firm $493,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 40%. Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar.

1. What is the Year-0 net cash flow?

   $ ???

2. What are the net operating cash flows in Years 1, 2, and 3?

   Year 1:	$ ???
   Year 2:	$ ???
   Year 3:	$ ???

3. What is the additional Year 3 cash flow (i.e, the after-tax salvage and the return of working capital)?

   $ ???

4. If the project's cost of capital is 14 %, what is the NPV of the project?

   $ ???

   Should the machine be purchased?

Net present Value: Blanda Incorporated mangement is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses a 9 percent discount rate for their production systems, in which system should the firm invest?

Cash Flows Year System 1 System 2

0 ($15,000) ( $45,000)

1 $15,000 $32,000

2 $15,000 $32,000

3 $15,000 $32,000

Compute the IRR for both production system 1 and production system 2. Which hasa the higher IRR? Which production system has the higher NPV? Explain why the IRR and NPV rankings of systems 1 and 2 are different.

Replacement Analysis

Although the Chen Company's milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $120,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $18,900 per year. It would have zero salvage value at the end of its life. The Project cost of capital is 9%, and its marginal tax rate is 35%. Should Chen buy the new machine? Do not round intermediate calculations. Round your answer to the nearest cent. Negative value, if any, should be indicated by a minus sign.

NPV: $ ??

Should or shouldn't Chen purchase the new machine?