PERSONAL FINANCE ETEXT TURNING MONEY
8th Edition
ISBN: 9780136879015
Author: KEOWN
Publisher: PEARSON
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Chapter 12, Problem 2DC1
Summary Introduction
To explain:
Role of cyclical and defensive stocks in S’s portfolio.
Introduction:
Cyclical stocks are equity securities whose share price gets affected by the rise and fall in the overall economy.
Defensive stocks are those securities which provide regular dividend and stable earnings to their shareholders and their profit is not affected by the ups and downs of the economy.
Portfolio is a group of financial assets including investment in shares, bonds and highly liquid debt instruments having maturity period of less than three months held by an individual or an organization.
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Estefan Industies has a new project available that requires an initial investment of sex million. The project will provide unlevered cash flows of $925,000 per year for the next 20 years. The company will finance the project with a debt-value ratio of 35. The company's bonds have a YTM of 5.9 percent. The companies with operations comparable to this project have unlevered betas of 1.09, 1.17, 1.28, and 1.20. The risk-free rate is 3.6 percent, and the market risk premium is 7 percent. The tax rate is 21 percent. What is the NPV of this project?
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PERSONAL FINANCE ETEXT TURNING MONEY
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