Business Finance Help for College and University Students

CAPM and Expected Return

CAPM and Expected Return. The following table shows betas for several companies. Calculate each stock's expected rate of return using the CAPM. Assume the risk-free rate of interest is 5 percent. Use a 9 percent risk premium for the market portfolio. Company / Beta: Cisco 2.03 Citigroup 1.36 Merck .40 Walt Disney .84

Risk and Return

Risk and Return. True or false? Explain or qualify as necessary. a. The expected rate of return on an investment with a beta of 2 is twice as high as the expected rate of return of the market portfolio. b. The contribution of a stock to the risk of a diversified portfolio depends on the market risk of the stock. c. If ...continues

Finance Future value/ Present value

Assume you intend to retire 25 years from today. During your retirement years you need to have an annual income flow of $86,000 per year for 15 years with the amount occurring exactly 25 years from today. On the 15th year of retirement, in addition to the lump sum, you need an additional $150,000 for miscellaneous purposes. You ...continues

Capital Budgeting Decisions- Chicago Valve Company Prepare and plot cashflow, NPV, IRR, MIRR for capital budegting decision. Plot the project's NPV profile.

Capital Budgeting Decisions- Chicago Valve Company Although he was hired as a financial analyst after completing his MBA, Richard Houston's first assignment at Chicago Valve was with the firm's marketing department. Historically, the major focus of Chicago Valve's sales effort was on demonstrating the reliability and technol ...continues

WACC

Target Capital structure will be at 60% debt, 10% preferred stock, and 30% common stock. As the financial manager, the CFO has informed you that the company's BEFORE tax cost of debt is 10%, preferred stock is at 14% and common stock is 16%. In addition, the company's marginal tax rate is 40%. Based on the info provided, calc ...continues

NPV and IRR

NPV/IRR. Growth Enterprises believes its latest project, which will cost $80,000 to install, will generate a perpetual growing stream of cash flows. Cash flow at the end of this year will be $5,000, and cash flows in future years are expected to grow indefinitely at an annual rate of 5 percent. a. If ...continues

Why is the NPV-maximizing rule to cut the tree when its growth rate equals the discount rate?

A classic problem in management of forests is determining when it is most economically advantageous to cut a tree for lumber. When the tree is young, it grows very rapidly As it ages, its growth slows down. Why is the NPV-maximizing rule to cut the tree when its growth rate equals the discount rate?

Project Evaluation using NPV

Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $6 million. The equipment will be depreciated straightline over 5 years to a value of zero, but in fact it can be sold after 5 years for $500,000. The firm believes that working capital at each date must be maint ...continues

Preferred Stock-price, dividend yield, the capital gains yield, and the expected rate of return

Preferred Products has issued preferred stock with an $8 annual dividend that will be paid in perpetuity. a. If the discount rate is 12 percent, at what price should the preferred sell? b. At what price should the stock sell 1 year from now? c. What is the dividend yield, the capital gains yield, and the expected rate of ret ...continues

Stock Values

Integrated Potato Chips paid a $1 per share dividend yesterday. You expect the dividend to grow steadily at a rate of 4 percent per year. a. What is the expected dividend in each of the next 3 years? b. If the discount rate for the stock is 12 percent, at what price will the stock sell? c. What is the expected stock price 3 ...continues