You are considering an investm

You are considering an investment in a mutual fund with a 3% load and an expense ratio of 0.75%. can invest instead in a bank CD paying 5% interest. Required: 7.5 points a. If you plan to invest for two years, what annual rate of return must the fund portfolio earn for you be better off in the fund than in the CD? Assume annual compounding of returns. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Annual rate of return % eBook ? References b. If you plan to invest for six years, what annual rate of return must the fund portfolio earn for you be better off in the fund than in the CD? Assume annual compounding of returns. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Annual rate of return % canon

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You are considering an investm

You are considering an investment in the common stock of Crisp’s
Cookware. The stock is expected to pay a dividend of $1.00 a share
at the end of the year (D1=1.00). The stock has a beta of 0.9. The
risk-free rate is 4.5%, and the market expected return is 10.5%.
The stock’s dividend is expected to grow at some constant rate g.
The stock currently sells for $27 a share. Assuming the market is
in equilibrium, what does the market believe will be the stock
price at the end of 5 years?

First, calculate r
using CAPM: r=rf+ß*(rm-rf)r=rf+ß*(rm-rf)

  • Second, calculate g using the following
    equation:r=D1P0+gr=D1P0+g
  • Third, calculate future stock price using the
    equation: Pt=P0*(1+g)t

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You are considering an investm

You are considering an investment in a clothes distributer. The company needs $107,000 today and expects to repay you $122,000 in a year from now. What is the IRR of this investment opportunity? Given the riskiness of the investment opportunity, your cost of capital is 18%. What does the IRR rule say about whether you should invest?

What is the IRR of this investment opportunity?

The IRR of this investment opportunity is %. (Round to one decimal place.)

Given the riskiness of the investment opportunity, your cost of capital is 18%.

What does the IRR rule say about whether you should invest?

The IRR rule says that you (Select from the drop-down menu.)

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You are considering an investm

You are considering an investment in Justus Corporation’s stock, which is expected to pay a dividend of $2.50 a share at the end of the year (D1 = $2.50) and has a beta of 0.9. The risk-free rate is 5.1%, and the market risk premium is 4.5%. Justus currently sells for $32.00 a share, and its dividend is expected to grow at some constant rate, g. The data has been collected in the Microsoft Excel Online file below.

Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 3 years? (That is, what is ?) Round your answer to two decimal places. Do not round your intermediate calculations. $ fill in the blank 2

Constant growth
Expected year-end dividend (D1) $2.50
Beta coefficient 0.90
Risk-free rate (rRF) 5.10%
Market risk premium (RPM) 4.50%
Current stock price (P0) $32.00
Market in equilibrium Yes
Formulas
Calculate required return:
Required return on common stock #N/A
Calculate constant growth rate, g:
Total return on common stock #N/A
Expected dividend yield #N/A
Expected capital gains yield #N/A
Calculate stock price in 3 years, P3:
Number of years from today 3
Calculate P3 using P0 #N/A
Alternative calculation:
Calculate P3 using dividends #N/A

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You are considering an investm

You are considering an investment in the common stock of Keller Corp. The stock is expected to pay a dividend of $2 a share at the end of the year (D1 $2.00). The stock has a beta equal to 0.9. The risk-free rate is 5.6 percent, and the market risk premium is 6 percent. The stock’s dividend is expected to grow at some constant rate g. The stock currently sells for $25 a share. Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 3 years? (That is, what is P 3?)

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You are considering an investm

You are considering an investment in Justus Corporation’s stock, which is expected to pay dividend of $1.50 a share at the end of the year (D. – $1.50) and has a beta of 0.9. The risk-free rate is 4.1%, and the market risk premium is 4.5%. Justus currently sells for $39.00 a share, and its dividend is expected to grow at some constant rate, 0. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. HT X Open spreadsheet Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 3 years? (That is what is B ) Round your answer to two decimal places. Do not round your intermediate calculations. $ 22.72 O Search (Alt + 0) Excel template – Saved Data Review View Formulas Help File Home Insert Draw Page Layout .. va A B 10 Eva Arial V B11 E F G D B $1.50 0.90 4.10% 4.50% $39.00 Yes Formulas #N/A A 3. Expected year-end dividend (D) 4 Beta coefficient 5 Risk-free rate (TRF) 6 Market risk premium (RPM) 7 Current stock price (Po) 8 Market in equilibrium 9 10 Calculate required retur: 11 Required return on common stock 12 13 Calculate constant growth rate, g: 14 Total return on common stock 15 Expected dividend yield 16 Expected capital gains yield 17 18 Calculate stock price in 3 years, Ps: 19 Number of years from today 20 Calculate Ps using Po 21 22 Alternative calculation 23 Calculate Ps using dividends #N/A #N/A #N/A 3 #NIA #N/A Sheet1 +

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You are considering an investm

You are considering an investment in Justus Corporation’s stock, which is expected to pay a dividend of $3.00 a share at the end of the year (D1 = $3.00) and has a beta of 0.9. The risk-free rate is 5.7%, and the market risk premium is 5.0%. Justus currently sells for $43.00 a share, and its dividend is expected to grow at some constant rate, g. Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 3 years? (That is, what is ?) Do not round intermediate calculations. Round your answer to the nearest cent.

1b. A stock is expected to pay a dividend of $1.00 at the end of the year (i.e., D1 = $1.00), and it should continue to grow at a constant rate of 8% a year. If its required return is 13%, what is the stock’s expected price 5 years from today? Do not round intermediate calculations. Round your answer to the nearest cent

1c. Maxwell Mining Company’s ore reserves are being depleted, so its sales are falling. Also, because its pit is getting deeper each year, its costs are rising. As a result, the company’s earnings and dividends are declining at the constant rate of 4% per year. If D0 = $5 and rs = 17%, what is the value of Maxwell Mining’s stock? Round your answer to the nearest cent.

1d. Farley Inc. has perpetual preferred stock outstanding that sells for $36 a share and pays a dividend of $5.00 at the end of each year. What is the required rate of return? Round your answer to two decimal places.

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You are considering an investm

You are considering an investment in either individual stocks or a portfolio of stocks. The two stocks you are researching, Stock A and Stock B, have the following historical returns:

Year
2017 -17.00 % -5.00 %
2018 34.00 16.00
2019 29.00 -13.00
2020 -7.00 45.00
2021 31.00 27.00
  1. Calculate the average rate of return for each stock during the 5-year period. Do not round intermediate calculations. Round your answers to two decimal places.

    Stock A: %

    Stock B: %

  2. Suppose you had held a portfolio consisting of 50% of Stock A and 50% of Stock B. What would have been the realized rate of return on the portfolio in each year? What would have been the average return on the portfolio during this period? Do not round intermediate calculations. Round your answers to two decimal places. Negative values, if any, should be indicated by a minus sign.

    Year Portfolio
    2017 %
    2018 %
    2019 %
    2020 %
    2021 %
    Average return %
  3. Calculate the standard deviation of returns for each stock and for the portfolio. Do not round intermediate calculations. Round your answers to two decimal places.

    Portfolio
    Std. Dev. % % %

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You are considering an investm

You are considering an investment with the following cash flows. If the required rate of return for this investment is 10 percent, should you accept it based solely on the internal rate of return rule? Why or why not?

Year Cash Flow

0 -$12,000

1 $ 6,500

2 $ 9,000

3 -$ 1,500

Group of answer choices

no; because the IRR is less than the required return

no; because the IRR is a negative rate of return

yes; because the IRR is a positive rate of return

You can not apply the IRR rule in this case because there may be multiple IRRs.

yes; because the IRR exceeds the required return

22.

Which of the following statements regarding the discounted payback period is correct?

Group of answer choices

Does not require an arbitrary cutoff point

This method will yield a shorter payoff period than that the regular payoff method.

Incorporate the time value of money

Takes consideration of cash flows beyond the cutoff date

29.

Chuckanut Corp. acquired some equipment three years ago for $26,000. The equipment is classified as 5-year property for MACRS. The firm is considering selling these assets now for a market price of $18,000. What is the net cash flow from the salvage value if the tax rate is 21 percent?

MACRS 5-year property

Year Rate

1 20.00%

2 32.00%

3 19.20%

4 11.52%

5 11.52%

6 5.76%

Group of answer choices

$16,358.88

$14,655.46

$14,220.00

$18,904.80

$15,308.64

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You are considering an investm

You are considering an investment in a mutual fund with a 4% load and expense ratio of .5%. You can invest instead in a bank CD paying 6% interest.

a. If you plan to invest for two years, what annual rate of return must the fund portfolio earn for you to be better off in the fund than in the CD? Assume annual compounding of returns.

b. How does your answer change if you plan to invest for six years? Why does your answer change?

c. Now suppose that instead of a front-end load the fund assesses a 12b-1 fee of .75% per year. What annual rate of return must the fund portfolio earn for you to be better off in the fund than in the CD? Does your answer in this case depend on your time horizon?

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You are considering an investm

You are considering an investment in the shares of Kirk’s Information Inc. The company is still in its growth phase, so it won’t pay dividends for the next few years. Kirk’s accountant has determined that their first year’s earnings per share (EPS) is expected to be $20. The company expects a return on equity (ROE) of 25% in each of the next 5 years but in the sixth year they expect to earn 20%. In the seventh year and forever into the future, they expect to earn 15%. Also, at the end of the sixth year and every year after that, they expect to pay dividends at a rate of 70% of earnings, retaining the other 30% in the company. Kirk’s uses a discount rate of 15%.

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You are considering an investm

You are considering an investment in telecom supplier, JDS Uniphase Inc. The firm is expected to pay dividends of $7.7 per share next year with a constant dividend growth rate of 2.9%. The telecom supplier industry is expected to pay dividends of $5.7 per share next year with a constant dividend growth rate of 4.1%. Both JDS Uniphase and an average firm in its industry maintain a 50% dividend payout ratio

JDS Uniphase Inc and an average firm in its industry both have beta’s of 1.8. The historical risk premium for the market portfolio is 7% and U.S. risk free treasuries yield 3.5%.

(a) What is the expected return an equity investor requires for investing in JDS shares. Enter your answer as a percentage to 2 decimal places.

(b) Determine the fair market value of one share of JDS Uniphase. Enter answer to two decimal places.

(c) Calculate the forward P/E ratio for JDS Uniphase. Enter answer to two decimal places.

(d) Calculate the forward P/E ratio for the Industry. Enter answer to two decimal places.

(e) Based on the P/E multiples is JDS Uniphase undervalued relative to an average firm in its industry. Answer Yes for undervalued, No for Overvalued, or else enter fairly-valued

(f) Using your answers above, calculate the PEG ratio for JDS Uniphase. Enter answer to two decimal places.

(g) Using your answers above, calculate the PEG ratio for the Industry. Enter answer to two decimal places.

(e) Based on the PEG ratios, is JDS Uniphase a more desirable investment relative to an average firm in its industry. Answer Yes or No

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