Finance

1.    Working with Uncertainty. Calculating Returns, Standard Deviations, and coefficients of variation, based the following information. Compare the risk-return profiles of A, B and the (Portfolio of A&B), what is the lesson we can draw from the comparision.

State of economy    Probabilityof the state    Rate of Returns
stock A    stock B    50% A + 50%B
Recession    0.15    0.2    -0.3    ?
Normal    0.55    0.1    0.18    ?
Boom    0.3    -0.15    0.31    ?

expected return         ?    ?    ?
Standard deviation         ?    ?    ?
cov (stdev / expected return)         ?    ?    ?

2.    Finding the WACC.    Given the following information for Janicek Power Co., find the WACC. Assume the company’s tax rate is 35 percent.
•    Debt:
o    9,500 of 7 percent coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 118 percent of par; the bonds make semiannual payments.
•    Common stock:
o    200,000 shares outstanding, selling for $87 per share; beta is 1.25.
o    7 percent market risk premium and 3.1 percent risk-free rate.
•    Preferred stock:
o    15,000 shares of 4.8 percent preferred stock outstanding, currently selling for $100 per share.

tax rate

after-tax cost * wgt
before tax cost    after-tax cost    mkt value    wgt %    cost components
Debt     ?    ?      ?     ?     ?
Stock     ?     ?     ?    ?      ?
Preferred     ?    ?      ?     ?     ?

total value               ?              <– sum of market value for each component
wacc                         ?    <– sum of cost components

debt             stock             preferred

shares    ?        shares    ?        shares    ?
price    ?        price    ?        price    ?

value    ?        value    ?        value    ?

coupon rate    ?        beta    ?        div / price    ?
par    ?        rm-rf    ?
maturity    ?        rf    ?
# of payment per year    ?
price    ?        required ret    ?

nper    ?
pmt    ?
pv    ?
fv    ?

rate    ?

ytm    ?

ytm * # of payments per year
Yield    ?         cost from CAPM    ?         cost of preferred    ?

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