8-21capital of $500 million invested in five stocks:StockInvestmentStock's Beta CoefficientA$160 million0.5В120 million1.280 million1.8D80 million1.060 million1.6Kish's beta coefficient can be found as a weighted average of its stocks' betas. The risk-erate is 6%, and you believe the following probability distribution for future market retumsis realistic:TTProbabilityMarket Return0.1- 28%0.20.4120.2300.150What is the equation for the security market line (SML)? (Hint: First, determine theexpected market return.)Calculate Kish's required rate of return.c. Suppose Rick Kish, the president, receives a proposal from a company seeking newcapital. The amount needed to take a position in the stock is $50 million, it has arexpected return of 15%, and its estimated beta is 1.5. Should Kish invest in the newcompany? At what expected rate of return should Kish be indifferent to purchasangthe stock?а.b.

a) Equation of security market line is: Required return = rF + B(rM - rF)

Answered: Inves $160 120

Business

Finance

Inves $160 120

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Related questions

Q: A = $2,000 End of Year 1 17 18 19 20 21 i = 12% per Year Po = ? P17 = F17 2.

A: End of year payments Annuity Payment between year 18-21 = 2000 Interest Rate = 12%

Q: LaGrange Corporation had the following budgeted sales for the first half of the current year: Cash…

A: The cash collection schedule is prepared to estimate the amount of cash collected during the period.

Q: Received R5000 from mamba for returned goods , invoice 33

A: Here's how this might typically be recorded:1. Record the Return of Goods:Debit: Sales Returns or…

Q: Avril Company makes collections on sales according to the following schedule: 30% in the month of…

A: Cash collection in March from January sales = January sales x 11% = $150,000 x 11% = $16500

Q: All That Remains Products has projected sales for next year of: Q1 Q2 Q3 Sales $ 76,100 $ 79,850 $…

A: Purchases in Q3= Sales in Q4 * 53%= 93600*.53= 49608

Q: Rebate on bills diScounted 1.1.2020 48 31.12.2020 52 Net profit

A: Ans. Net profit is calculated by deducting the expenses from the income of an organisation.

Q: The total overhead applied to Product A7 under activity-based costing is closest to: (Round your…

A: Under Activity Based Costing, overhead costs are applied to the based on the relevant activities.

Q: Use the following to answer the next three questions: The Wall, Co. is considering the purchase of…

A: Operating Cash flow is the amount which is earned by the investor from the project. It is the net…

Q: Multiple Choice $308,000 $384,000 sa $460,000 $522,000

A: Increase in retained earnings =384000 Dividend =76000

Q: system: Costs: Wages and salaries Depreciation $ 286,000 270,000 231,000 $ 787,000 Utilities Total…

A: Activity-based costing is a costing method where the indirect cost is assigned to the jobs or…

Q: Selling price per unit Manufacturing costs: Variable manufacturing cost per unit produced: Direct…

A: Lets understand the basics. Net operating income under costing can be calculated using either of two…

Q: 8. Find the net present value of the cash flows shown below. +200 %5 %8 %10 %12 Semiannually Monthly…

A: Here, Cash Flow in Year 1 is $200 Cash Flow in Year 2 is $60 Cash Flow in Year 3 is -$100 Cash Flow…

Q: budgeted

A: Cash collections from sales play a crucial role in the working of any company. The higher the cash…

Q: job-order costing system

A: Job-order costing is used in a company with different jobs that has to be manufactured instead of a…

Q: 48. $230,000 O $205,000 O $140,000 O OO 49. In the current year, Peeta Company reported book income…

A: Schedule M-1 is the bridge (reconciliation) between the books and records of a corporation and its…

Q: When a government receives a donated capital asset, it should be reported at:

A: Dear student, as per bartleby Q&A authoring guidelines, experts are allowed to answer only the…

Q: NOPAT 8250000 EBITDA 17725000 Net Income 5050000 Capital Expenditures 6820000 After tax capital…

A: Formula: Economic value added (EVA) = Net operating profit after tax - Total invested capital x WACC…

Q: ariable costs per unit: Direct materials $ 94 ixed costs per year: $ 539,000 $ 3,675,000 $ 1,350,000…

A: Correct Option is: $691,000

Q: If you invest $9,100 per period for the following number of periods, how much would you have in each…

A: TVM concept will be used here. TVM means time value of money.

Q: Cash 56500 Receivables short term 25800 Invertory Payables short term Payables long term salaries…

A: The working capital is calculated as difference between current assets and current liabilities.

Q: Problem 10 Determine the present value of each perpetuity shown in the following table. Annual…

A: Perpetuity Annual amount Discount rate A 30000 8% B 100000 12% C 20000 6% D 60000 5%

Q: annuity payment years interest rate2400 7 5%1400 9 4%12580 17 6%32150 23 8% calcularte the cash flow

A: The cash flow of an annuity can be calculated using the formula for the present value of an ordinary…

Q: Firm X is considering the replacement of an old machine with one that has a purchase price of…

A: Cash outflow for a new machine can be calculated by deducting the sum of tax savings on loss on the…

Q: Corporation is considering the purchase of a machine that would cost 5220,000 and would last for 6…

A: Net present value describes the amount of profitability generated by an investment and is expressed…

Q: 8. Find the net present value of the cash flows shown below. +200 %5 %8 %10 %12 Semiannually…

A: Assumptions: Timeline given in the question is in years. Interest rates are p.a. effective: i_1 = 5%…

Q: Neelon Corporation has two divisions: Southern Division and Northern Division. The following data…

A: Solution We are given the following data of Northern Division Sales = $ 129,400 Variable expenses =…

Q: QUESTION 14 Based on the following cash flows (t=0 to t=5), calculate the approximate-ERR. Assume…

A: Formula:- External rate of return (ERR). ERR = FV of revenuesPV of costs1/n - 1 where , FV of…

Q: Snavely, Incorporated, manufactures and sells two products: Product E1 and Product A7. Data…

A: Solution.. Activity rate = estimated overhead / estimated cost Driver Activity Rate…

Q: langy, Inc. produces and sells salsa, based on an award-winning family recipe. As part of its annual…

A: Fixed Cost refers to the costs, which remain fixed in the total amount with increases or decreases…

Q: annuity payment years interest rate2400 7 5%1400 9 40/612580 17 6%32150 23 8% calcularte the cash…

A: Calculating the Present Value of Annuities: Step-by-Step Explanation We'll use the first annuity…

Q: Multiple Choice $280,200 $305,200 $315,200 $214,000

A: The acquisition means when a company purchases most of the stake of another company to gain control…

Q: Spang Corporation uses a job-order costing system with a single plantwide predetermined overhead…

A: Job costing is an accounting method used to track the cost of individual projects and jobs.

Q: Kurtulus Corporation uses the weighted-average method in its process costing system. Data concerning…

A: Cost of ending work in progress inventory is calculated by multiplying the number of equivalent…

Q: Grove Media plans to acquire production equipment for $845,000 that will be depreciated for tax…

A: A tax shield is a decrease in an individual's or corporation's taxable income that is accomplished…

Q: Question 3: The annual contribution limit to a 401(k) plan is Answer: А. S6,000 В. S7,000 С. $13,500…

A: 401(K) is am retirement savings and investment plan offered by employer to employees.

Q: 8. Find the net present value of the cash flows shown below.

A: Net present value (NPV) of an alternative/project refers to the variance between the initial…

Q: Information for Hobson Corporation for the current year ($ in millions): Income from continuing…

A: Income from the continuing operations are given before tax is = $230Add:Non deductible portion of…

Q: cost of goods manufactured

A: An under applied or over applied manufacturing overhead means that the overhead amount applied in…

Q: 36. The future value of Php 200 received today and deposited at 8 percent for three years is A. Php…

A: In the given question we require to compute the future value from following details: Deposit today…

Q: Determine the value of the perpetuity annual amount $20,000 discount rate 8%

A: A perpetuity is an annuity that goes on forever. In other words a perpetuity is an annuity that has…

Q: Refer to the following selected financlal Information from Texas Electronics. Compute the company's…

A: Working Capital is the amount used to fund the short-term expenses of the business. The current…

Q: Required information PayNet Inc. (PayNet) and Shale Ltd. (Shale) had the following balance sheets on…

A: Investment in Associates and Joint venture and Subsidiary Equity Accounting method - This method is…

Q: Assume that a manufacturing company incurred the following costs: Direct labor Advertising Factory…

A: The costs incurred for production are classified as fixed and variable cost. The fixed costs remain…

Q: TB MC Qu. 10-83 (Algo) The Millard Division's operating... The Millard Division's operating data for…

A: Net operating income: It implies to a financial figure that reflects the profitability of the…

Q: FV(Quarterly.) = $100(1.03)20

A: Future value : Future value is the value of the asset at a future date compounded at a particular…

Question

8-21
capital of $500 million invested in five stocks:
Stock
Investment
Stock's Beta Coefficient
A
$160 million
0.5
В
120 million
1.2
80 million
1.8
D
80 million
1.0
60 million
1.6
Kish's beta coefficient can be found as a weighted average of its stocks' betas. The risk-e
rate is 6%, and you believe the following probability distribution for future market retums
is realistic:
TT
Probability
Market Return
0.1
- 28%
0.2
0.4
12
0.2
30
0.1
50
What is the equation for the security market line (SML)? (Hint: First, determine the
expected market return.)
Calculate Kish's required rate of return.
c. Suppose Rick Kish, the president, receives a proposal from a company seeking new
capital. The amount needed to take a position in the stock is $50 million, it has ar
expected return of 15%, and its estimated beta is 1.5. Should Kish invest in the new
company? At what expected rate of return should Kish be indifferent to purchasang
the stock?
а.
b.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

22-A company purchased goods worth RO 10,000 excluding VAT and sold to customers for RO 25,000 excluding VAT. Assume the VAT rate as 5%. How much will be the VAT collected by the government? a. RO 1,750 b. RO 750 c. RO 1,250 d. RO 500
Clothing Company has two service departments-purchasing and maintenance, and two production departments-fabrication and assembly. The distribution of each service department's efforts to the other departments is shown below: FROM Purchasing Maintenance Purchasing Purchasing Maintenance Fabrication. Assembly TO ex Maintenance: 55% 0% Fabrication 30% 50% The direct operating costs of the departments (including both variable and fixed costs) were as follows: $ 126,000 48,000 102,000 78,000 Assembly 15% 15% The total cost accumulated in the fabrication department using the direct method is (calculate all ratios and percentages to 4 decimal places, for example 33,3333%, and round all dollar amounts to the nearest whole dollar):
Comans Corporation has two production departments, Milling and Customizing. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Milling Department's predetermined overhead rate is based on machine-hours and the Customizing Department's predetermined overhead rate is based on direct labor-hours. At the beginning of the current year, the company had made the following estimates: Machine-hours Job A319: Machine-hours Direct labor-hours Total fixed manufacturing overhead cost Variable manufacturing overhead per machine-hour Variable manufacturing overhead per direct labor-hour During the current month the company started and finished Job A319. The following data were recorded for this job: Direct labor-hours Direct materials Direct labor cost Milling 60 20 $ 655 $ 400 Milling 18,000 4,000 $ 113,400 $ 1.60 Customizing 10 60 $ 305 $ 1,200 Customizing 13,000 7,000 $ 64,400 $ 3.90 If the company marks up its manufacturing…
Fairmount Inc., uses the balance sheet approach in estimating uncollectible accounts expense. Its Allowance for Doubtful Accounts has a $3,200 credit balance prior to adjusting entries. It has just completed an aging analysis of accounts receivable at December 31, Year 1. This analysis disclosed the following information: Multiple Choice Not yet due 1-30 days past due 31-60 past due What is the appropriate balance for Fairmount's Allowance for Doubtful Accounts at December 31, Year 1? $5,160 Age Group Total $ 92,000 $ 40,000 $ 33,000 $3,560 Percentage Considered Uncollectible. 18 49 89
devrat
Not handwritten....
TABLE 13.2 Present value of an annuity of $1 ½% 6% 7% 1% 0.9901 1.9704 2% 0.9804 3% 0.9709 4% 0.9615 0.9950 1.9851 1.9416 1.9135 1.8861 5% 0.9524 1.8594 2.7232 3.5459 4.3295 2.9702 2.9410 2.8839 2.7751 2.8286 3.7171 3.9505 3.9020 3.6299 4.9259 4.4518 3.8077 4.8534 4.7134 4.5797 5.7955 5.6014 6.7282 6.4720 5.8964 5.2421 6.8621 5.4172 6.2303 7.0197 6.0021 7.8230 7.6517 7.3255 8.7791 8.5660 7.7861 8.1622 8.9826 5.0757 5.7864 6.7327 6.4632 7.4353 7.1078 8.1109 7.7217 8.3064 8.8632 9.7304 9.4713 8.5302 10.6770 10.3676 9.7868 9.2526 8.7605 8% 0.9434 0.9346 0.9259 1.8334 1.8080 1.7833 2.6730 2.6243 2.5771 3.4651 3.3872 3.3121 4.2124 4.1002 3.9927 4.9173 4.7665 4.6229 5.5824 5.3893 5.2064 6.2098 5.9713 5.7466 6.8017 6.5152 6.2469 7.3601 7.0236 6.7101 7.8869 7.4987 7.1390 11.2551 10.5753 8.3838 7.9427 7.5361 12.1337 9.9856 8.8527 8.3576 7.9038 13.4887 13.0037 12.1062 11.2961 10.5631 9.8986 8.2442 14.4166 13.8650 12.8492 11.9379 11.1184 10.3796 9.7122 9.1079 8.5595 15.3399 14.7179 13.5777…
Goods sent on consignment R760 000. Opening consignment stock R48 000. Cash sales R700 000. Consignor’s expenses R20 000. Consignee’s expenses R12 000. Commission R20 000. Closing consignment stock R300 000. The profit on consignment is________. Select one: a. R150 000 b. R140 000 c. R92 000 d. R456 000
$120 $90 $60 $30 2- Assuming a 10% interest rate, find the value of E that makes the disbursements equivalent to the receipts (the overall worth sums to "Zero") in the following cash flow diagram. 0-1 E E E EE
40 7 520,000 25 98,700 13 LO 1 8. Calculating Annuity Values For each of the following annuities, calculate the future value. Annual Payment Years Interest Rate $2,100 10 8% 6,500 40 1,100 9. 6 5,000 30 10
Question 11 Consider a policy with a R10 000 deductible and a recapture factor of 5%. Determine the amount of the deductible the insured would pay for a loss of R45 000. 1 R 8 250 2 R 2 250 3 R36 750 4 R10 000
Cinnamon Buns Company (CBC) started 2024 with $54,000 of inventory on hand. During 2024, $284,000 in inventory was purchased on account with credit terms of 2/10, 1/30 - All discounts were taken. Purchases were all made f.o.b. shipping point. CBC paid freight charges of $11,000. Inventory with an invoice amount of $4,800 was returned for credit. Cost of goods sold for the year was $320,000. CBC uses a perpetual inventory system. Assume instead that (a) freight costs were paid by the vendor, (b) no discounts were taken, and (c) the inventory on hand at the beginning of 2024 was determined by a physical count that failed to realize that $12,000 of inventory was being held on consignment for Frosting R Us Incorporated. What is cost of goods available for sale, assuming CBC uses the gross method to record purchase discounts? Multiple Choice $324,680 $344,200 $321.200 A

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS