# Project #76979 - Corporate Finance

 1.      Here are returns and standard deviations for four investments.

 Return Standard Deviation Treasury bills 6% 0% Stock P 10 14 Stock Q 14.5 28 Stock R 21 26

 Calculate the standard deviations of the following portfolios.

 a. 50% in Treasury bills, 50% in stock P.

 Standard deviation %

 b. 50% each in Q and R, assuming the shares have: (Do not round intermediate calculations. Round your answers to 1 decimal place.)

 Standard Deviation Perfect positive correlation % Perfect negative correlation % No correlation %

 2.      Suppose that the Treasury bill rate is 6% rather than 2%. Assume that the expected return on the market stays at 10%. Use the following information.

 Stock Beta (β) A 1.78 B 1.54 C 1.53 D 0.98 E 0.95 F 0.80 G 0.75 H 0.66 I 0.42 J 0.40

 a. Calculate the expected return from H. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 Expected return %

 b. Find the highest expected return that is offered by one of these stocks. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 Highest expected return %

 c. Find the lowest expected return that is offered by one of these stocks. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 Lowest expected return %

d.

Assume that the expected market return stays at 10%. Would C offer a higher or lower expected return if the Treasury bill interest rate were 6% rather than 2%?

 Higher Lower

e.

Assume that the expected market return stays at 10%. Would I offer a higher or lower expected return if the interest rate were 6% rather than 8%?

 Higher Lower

3.      Epsilon Corp. is evaluating an expansion of its business. The cash-flow forecasts for the project are as follows:

 Years Cash Flow (\$ millions) 0 −100 1-10 +15

 The firm's existing assets have a beta of 1.4. The risk-free interest rate is 4% and the expected return on the market portfolio is 12%. What is the project's NPV? (Enter your answer in millions. Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)

 NPV \$

 4.      A company is 40% financed by risk-free debt. The interest rate is 10%, the expected market risk premium is 8%, and the beta of the company’s common stock is .5.

 a. What is the company cost of capital? (Do not round intermediate calculations. Round your answer to 1 decimal place.)

 Cost of capital %

 b. What is the after-tax WACC, assuming that the company pays tax at a 35% rate? (Do not round intermediate calculations.)

 After-tax WACC %

 5.      EZCUBE Corp. is 50% financed with long-term bonds and 50% with common equity. The debt securities have a beta of .15. The company’s equity beta is 1.25. What is EZCUBE’s asset beta? (Do not round intermediate calculations. Round your answer to 1 decimal place.)

 Beta of assets

 Subject Business Due By (Pacific Time) 07/23/2015 12:00 am
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