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6-6 Beta and expected return
Required Rate of Return
Suppose

Resolved Question:

6-6 Beta and expected return Required Rate of Return Suppose rRF = 5%, rM = 10%, and rA = 12%. a. Calculate Stock A’s beta. b. If Stock A’s beta were 2.0, then what would be A’s new required rate of return?

(6-1) Portfolio Beta An individual has $35,000 invested in a stock with a beta of 0.8 and another $40,000 invested in a stock with a beta of 1.4. If these are the only two investments in her portfolio, what is her portfolio’s beta?

(6-2) Required Rate of Return Assume that the risk-free rate is 6% and that the expected return on the market is 13%. What is the required rate of return on a stock that has a beta of 0.7?

6-7 Required Rate of Return Required Rate of Return Suppose rRF = 9%, rM = 14%, and bi = 1.3. a. What is ri, the required rate of return on Stock i? b. Now suppose rRF (1) increases to 10% or (2) decreases to 8%. The slope of the SML remains constant. How would this affect rM and ri? c. Now assume rRF remains at 9% but rM (1) increases to 16% or (2) falls to 13%. The slope of the SML does not remain constant. How would these changes affect ri?

All working must be shown in excel thank you
Customer

(11-7) You have been asked by the president of your company to evaluate the proposed acquisition of a new spectrometer for the firm's R&D department. The equipment's basic price is $70,000, and it would cost another $15,000 to modify it for special use by your firm. The spectrometer, which falls into the MACRS 3-year class, would be sold after 3 years for $30,000. Use of the equipment would require an increase in net working capital (spare parts inventory) of $4,000. The spectrometer would have no effect on revenues, but it is expected to save the firm $25,000 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 40%.

a. What is the net cost of the spectrometer? (That is, what is the Year-0 net cash flow?)

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

c. What is the additional (nonoperating) cash flow in Year 3?

d. If the project's cost of capital is 10%, should the spectrometer be purchased?

Detail your work in the answer to each question in a Word document format

Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this year's capital budget. The projects are independent. The cash outlay for the truck is $17,100 and that for the pulley system is $22,430. The firm's cost of capital is 14%. After-tax cash flows, including depreciation, are as follows:

Year Truck Pulley

1 $5,100 $7,500

2 5,100 7,500

3 5,100 7,500

4 5,100 7,500

5 5,100 7,500

Calculate the IRR, the NPV, and the MIRR for each project, and indicate the correct accept-reject decision for each.

(10-9) NPVs and IRRs for Mutually Exclusive Projects

Davis Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory. Since both forklifts perform the same function, the firm will choose only one. (They are mutually exclusive investments.) The electric-powered truck will cost more, but it will be less expensive to operate; it will cost $22,000, whereas the gas-powered truck will cost $17,500. The cost of capital that applies to both investments is 12%. The life for both types of truck is estimated to be 6 years, during which time the net cash flows for the electric-powered truck will be $6,290 per year and those for the gas-powered truck will be $5,000 per year. Annual net cash flows include depreciation expenses. Calculate the NPV and IRR for each type of truck, and decide which to recommend.

11- 2 Operating Cash Flow

Cairn Communications is trying to estimate the first-year operating cash flow Operating Cash Flow (at t = 1) for a proposed project. The financial staff has collected the following information:

Projected sales $10 million

Operating costs (not including depreciation) $ 7 million

Depreciation $ 2 million

Interest expense $ 2 million

The company faces a 40% tax rate. What is the project's operating cash flow for the first year

(t = 1)?

(11-3) Net Salvage Value

Allen Air Lines is now in the terminal year of a project. The equipment originally cost $20 million, of which 80% has been depreciated. Carter can sell the used equipment today to another airline for $5 million, and its tax rate is 40%. What is the equipment's after-tax net salvage value?

Show all working in excel

thank you

Customer/p>

P.S. I cannot open up I will try when I get home but I know your answer is excellent

Customer:replied 3 years ago.

Hi Kelley can you help me with this assignment I preferred it to be done by you thank you

kelley can you help me with this assignment below?

12-1 AFN Equation

Baxter Video Products's sales are expected to increase by 20% from $5 million in 2010 to $6 million in 2011. Its assets totaled $3 million at the end of 2010. Baxter is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2010, current liabilities were $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accruals. The after tax profit margin is forecasted to be 5%, and the forecasted payout ratio is 70%. Use the AFN equation to forecast Baxter's additional funds needed for the coming year.

13-2 Value of Operations of Constant Growth Firm

EMC Corporation has never paid a dividend. Its current free cash flow of $400,000 is expected to grow at a constant rate of 5%. The weighted average cost of capital is WACC = 12%.

(13-3) Horizon Value

Current and projected free cash flows for Radell Global Operations are shown below. Growth is expected to be constant after 2012, and the weighted average cost of capital is 11%. What is the horizon (continuing) value at 2012?

Free cash flow (millions of dollars)$606.82 $667.50 $707.55 $750.00

(13-4) EROIC and MVA of Constant Growth Firm

A company has capital of $200 million. It has an EROIC of 9%, forecasted constant growth of 5%, and a WACC of 10%. What is its value of operations? What is its intrinsic MVA? (Hint: Use Equation 13-5.)

(13-5) Value Drivers and Horizon Value of Constant Growth Firm

You are given the following forecasted information for the year 2014: sales = $300,000,000, operating profitability (OP) = 6%, capital requirements (CR) = 43%, growth (g) = 5%, and the weighted average cost of capital (WACC) = 9.8%. If these values remain constant, what is the horizon value (i.e., the 2014 value of operations)? (Hint: Use Equation 13-4.)

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