CFIN -STUDENT EDITION-ACCESS >CUSTOM<
6th Edition
ISBN: 9780357752951
Author: BESLEY
Publisher: CENGAGE C
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Chapter 1, Problem 7PROB
Summary Introduction
To determine: if owner of a proprietor would maximize value of business or his personal satisfaction through his decisions
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The common shares of Almond Beach Inc, have a beta of 0.75, offer areturn of 9%, and have an historical standard deviation of return of17%. Alternatively, the common shares of Palm Beach Inc. have a betaof 1.25, offer a return of 10%, and have an historical standarddeviation of return of 13%. Both firms have a marginal tax rate of37%. The risk-free rate of return is 3% and the expected rate ofreturn on the market portfolio is 9½%.1. Which company would a well-diversified investor prefer to investin? Explain why and show all calculations.2. Which company Would an investor who can invest in the shares ofonly one firm prefer to invest in? Explain why.
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