T/F

The variance of an asset's return can be less than the standard deviation of that asset's return.

If an investor owns two stocks, one whose standard deviation is 0.21 and the other whose standard deviation is 0.10, the required return will be higher for the stock with the higher standard deviation.

Different investors have different degrees of risk aversion, and the result is that investors with greater risk aversion tend to hold securities with lower risk (and therefore a lower expected return) than investors who have more tolerance for risk.

A stock's beta measures its diversifiable risk relative to the diversifiable risks of other firms.

A stock's beta is more relevant as a measure of risk to an investor who holds a well-diversified portfolio.

Portfolio A has one security, while Portfolio B has 100 securities. Portfolio A can be less risky.

Portfolio A has only one stock, while Portfolio B consists of all stocks that trade in the market, each held in proportion to its market value. Because of its diversification, Portfolio B will by definition be riskless.

A portfolio's risk is measured by the weighted average of the standard deviations of the securities in the portfolio.

Even if the correlation between the returns on two securities is +1.0, if the securities are combined in the correct proportions, the resulting 2-asset portfolio will have less risk than either security held alone.

Bad managerial judgments or unforeseen negative events that happen to a firm are defined as "company-specific," or "unsystematic," events, and in theory, their effects on investment risk cannot be diversified away.

Rita is a 105 pound 19 year-old college student who, as part of a sorority hazing ritual, attempted to drink 2 gallons of water over a 1 hour period. She made it through 1.5 gallons before she began vomiting, became disoriented, and started slurring her speech. Others at the party didn’t think much of her behaviors, until she collapsed and began having seizures. 911 was called and she was rushed to the hospital. In the emergency room, Rita was semi-comatose, responding only to painful stimuli. Her vital signs were stable, and a review of other systems noted no abnormalities. Blood and urine labs were ordered, with the following results:

Na+: 109 mEq/L K+: 4.0 mEq/L Chloride: 88 mEq/L CO2: 20 mEq/L Blood urea nitrogen (BUN): 9 mg/dL Creatinine: 1.0 mg/dL Glucose: 105 mg/dL Serum osmolality: 229 mOsm/kg H2O Urine osmolality: 80 mOsm/kg H2OQuestions (1 point each)1. List Rita’s abnormal lab values, along with their normal ranges

.2. What 2 conditions is Rita simultaneously suffering from?

3. What lab values support these diagnoses?

4. This condition can cause brain damage secondary to cerebral edema. Explain, in detail, the mechanism by which cerebral edema occurs in the setting of these diagnoses.

5. What will the treatment be for this patient?

You plan to invest in the Kish Hedge Fund, which has total capital of $500 million invested in five stocks: Stock Investment Stock's Beta Coefficient A $160 million 0.4 B 120 million 1.6 C 80 million 1.8 D 80 million 1.0 E 60 million 1.6

Kish's beta coefficient can be found as a weighted average of its stocks' betas. The risk-free rate is 6%, and you believe the following probability distribution for future market returns is realistic: Probability Market Return 0.1 -29% 0.2 0 0.4 13 0.2 28 0.1 49

What is the equation for the Security Market Line (SML)? (Hint: First determine the expected market return.) ri = 9.7% + (6.8%)bi ri = 9.7% + (7.1%)bi ri = 6.0% + (6.8%)bi ri = 9.8% + (7.0%)bi ri = 6.0% + (7.1%)bi

Calculate Kish's required rate of return. Do not round intermediate calculations. Round your answer to two decimal places. % Suppose Rick Kish, the president, receives a proposal from a company seeking new capital. The amount needed to take a position in the stock is $50 million, it has an expected return of 14%, and its estimated beta is 1.4. Should Kish invest in the new company? The new stock be purchased.

At what expected rate of return should Kish be indifferent to purchasing the stock? Round your answer to two decimal places. %

You plan to invest in the Kish Hedge Fund, which has total capital of $500 million invested in five stocks: Stock Investment Stock's Beta Coefficient A $160 million 0.8 B 120 million 1.5 C 80 million 2.2 D 80 million 1.0 E 60 million 1.5 Kish's beta coefficient can be found as a weighted average of its stocks' betas. The risk-free rate is 6%, and you believe th

following probability distribution for future market returns is realistic: Probability Market Return 0.1 -29 % 0.2 0 0.4 13 0.2 28 0.1 55 What is the equation for the Security Market Line (SML)? (Hint: First determine the expected market return.) ri = 6.0% + (6.7%)bi ri = 3.9% + (7.4%)bi ri = 3.9% + (6.7%)bi ri = 6.0% + (7.4%)bi ri = 7.3% + (8.6%)bi Calculate Kish's required rate of return. Do not round intermediate calculations. Round your answer to two decimal places. % Suppose Rick Kish, the president, receives a proposal from a company seeking new capital. The amount needed to take a position in the stock is $50 million, it has an expected return of 15%, and its estimated beta is 1.4. Should Kish invest in the new company? The new stock be purchased. At what expected rate of return should Kish be indifferent to purchasing the stock? Round your answer to two decimal places. %

In a recent survey concerning company sales and net earnings, 15 companies responded with the following information.

a) Using a statistical computing tool, find the equation of the regression line.
For full marks your answer should be accurate to at least three decimal places.

ŷ = ? + ?x

b) Use the regression line from part a to estimate the net earnings for a company with sales of $54.8 thousand.
For full marks your answer should be accurate to at least one decimal place.

Earnings: ?

Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 7%, and its stock price is $40 per share with 2 million shares outstanding. BEA is a zero growth firm and pays out all of its earnings as dividends. The firm's EBIT is $15.368 million, and it faces a 40% federal-plus-state tax rate. The market risk premium is 4%, and the risk-free rate is 5%. BEA is considering increasing its debt level to a capital structure with 35% debt, based on market values, and repurchasing shares with the extra money that it borrows. BEA will have to retire the old debt in order to issue new debt, and the rate on the new debt will be 8%. BEA has a beta of 1.0.

1. What is BEA's unlevered beta? Use market value D/S (which is the same as w_d/w_s) when unlevering. Round your answer to two decimal places.
   
   
2. What are BEA's new beta and cost of equity if it has 35% debt? Do not round intermediate calculations. Round your answers to two decimal places.

   Beta
   Cost of equity	%

   
   
3. What are BEA’s WACC and total value of the firm with 35% debt? Do not round intermediate calculations. Round your answer to two decimal places.
   %
   
   What is the total value of the firm with 35% debt? Do not round intermediate calculations. Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to three decimal places.
   $ million

Sunrise, Inc., has no debt outstanding and a total market value of $320,000. Earnings before interest and taxes, EBIT, are projected to be $47,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 19 percent higher. If there is a recession, then EBIT will be 30 percent lower. The company is considering a $165,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,000 shares outstanding. Ignore taxes for questions a and b. Assume the company has a market-to-book ratio of 1.0 and the stock price remains constant. a-1. Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a-2. Calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b-1. Assume the firm goes through with the proposed recapitalization. Calculate the return on equity (ROE) under each of the three economic scenarios. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b-2. Assume the firm goes through with the proposed recapitalization. Calculate the percentage changes in ROE when the economy expands or enters a recession.

1) It is known that 10% of the calculators shipped from a particular factory are defective. What is the probability that exactly three of five chosen calculators are defective?

A) 0.00729

B) 0.0081

C) 0.081

D) 0.03

2)For a particular clothing store, a marketing firm finds that 16% of $10-off coupons delivered by mail are redeemed. Suppose six customers are randomly selected and are mailed $10-off coupons. What is the expected number of coupons that will be redeemed?

A) 0.81

B) 0.96

C) 3.42

D) 5.04

3)

The GPA of accounting students in a university is known to be normally distributed. A random sample of 20 accounting students results in a mean of 2.92 and a standard deviation of 0.16. Construct the 95% confidence interval for the mean GPA of all accounting students at this university.

A) 2.92 ± 1.729(0.16/ )

B) 2.92 ± 1.96(0.16/ )

C) 2.92 ± 2.086(0.16/ )

D) 2.92 ± 2.093(0.16/ )

4)

The probability that a normal random variable is less than its mean is ________.

A) 0.0

B) 0.5

C) 1.0

D) Cannot be determined

5)

A company that produces computers recently tested the battery in its latest laptop in six separate trials. The battery lasted 8.23,7.89,8.14,8.25,8.30, and 7.95 hours before burning out in each of the tests. Assuming the battery duration is normally distributed, construct a 95% confidence interval for the mean battery life in the new model.

A) [7.9490, 8.3044]

B) [7.9575, 8.2959]

C) [7.9873, 8.2661]

D) [7.9912, 8.2622]

Sunrise, Inc., has no debt outstanding and a total market value of $320,000. Earnings before interest and taxes, EBIT, are projected to be $47,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 19 percent higher. If there is a recession, then EBIT will be 30 percent lower. The company is considering a $165,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,000 shares outstanding. Ignore taxes for questions a and b. Assume the company has a market-to-book ratio of 1.0 and the stock price remains constant. Assume the firm has a tax rate of 25 percent. c-1. Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c-2. Calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c-3. Calculate the return on equity (ROE) under each of the three economic scenarios assuming the firm goes through with the recapitalization. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c-4. Given the recapitalization, calculate the percentage changes in ROE when the economy expands or enters a recession.

Assume you have just been hired as a business manager of PizzaPalace, a regional pizza restaurant chain. The company’s EBIT was $50 million last year and is not expected to grow. The firm is currently financed with all equity, and it has 10 million shares outstanding. When you took your corporate finance course, your instructor stated that most firms’ owners would be financially better off if the firms used some debt. When you suggested this to your new boss, he encouraged you to pursue the idea. As a first step, assume that you obtained from the firm’s investment banker the following estimated costs of debt for the firm at different capital structures: Percent Financed with Debt, 0% — 20 8.0% 30 8.5 40 10.0 50 12.0

If the company were to recapitalize, then debt would be issued and the funds received would be used to repurchase stock. PizzaPalace is in the 40% state-plus-federal corporate tax bracket, its beta is 1.0, the risk-free rate is 6%, and the market risk premium is 6%.

a. Using the free cash flow valuation model, show the only avenues by which capital structure can affect value.

b. What is business risk? What factors influence a firm’s business risk? What is operating leverage, and how does it affect a firm’s business risk? Show the operating break-even point if a company has fixed costs of $200, a sales price of $15, and variable costs of $10.

Please provide a minimum 250 word explanation.