CORPORATE FINANCE--CONNECT ACCESS CARD
12th Edition
ISBN: 9781264331062
Author: Ross
Publisher: MCG CUSTOM
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Question
Chapter 12, Problem 3QAP
a
Summary Introduction
Adequate information:
Beta of growth in GNP (βGNP) = 1.47
Beta of inflation (βInf) = -0.87
Expected value of growth in GNP (EVGNP) = 1.9%
Expected value of inflation (EVInf) = 3.2%
Actual value of growth in GNP (AVGNP) = 2.4%
Actual value of inflation (AVInf) = 3.6%
To compute: Systematic risk of the stock
Introduction: Systematic risk refers to the risk that is non-diversifiable that is inherent to the entire market.
b
Summary Introduction
Adequate information:
Old market share (MSOld) = 11%
New market share (MSNew) = 15%
Increase in stock return for every 1% increase in market share (InSR) = 0.58%
To compute: Unsystematic risk
Introduction: Unsystematic risk refers to the risk that is specific to a company. Such type of risks is diversifiable.
c
Summary Introduction
Adequate information:
Expected return on the stock (ERS) = 10.5%
Systematic risk (m)= 0.39%
Unsystematic risk (ε)= 2.32%
To compute: Total return on the stock
Introduction: Total return refers to the return that a stock earns after the consideration of all types of risks.
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Assume that the following statements of financial position are stated and a book value.
Alpha Corporation
Current Assets
$15,000
Current Liabilities
$5,400
Net Fixed Assets
39,000
Long-Term Debt
10,100
Equity
38,500
$54,000
$54,000
Beta Corporation
Current Assets
$3,600
Current Liabilities
$1,400
Net Fixed Assets
6,700
Long-Term Debt
2,100
Equity
6,800
$10,300
$10,300
Suppose the fair market value of Beta’s fixed assets is $9,500 rather than the $6,700 book value shown. Alpha pays $17,300 for Beta and raises the needed funds through an issue of long-term debt. Construct the post-merger statement of financial position now, assuming that the purchase method of accounting is used.
Chapter 12 Solutions
CORPORATE FINANCE--CONNECT ACCESS CARD
Ch. 12 - Prob. 1CQCh. 12 - Prob. 2CQCh. 12 - Prob. 3CQCh. 12 - Prob. 4CQCh. 12 - Market Model versus APT What are the differences...Ch. 12 - APT In contrast to the CAPM, the APT does not...Ch. 12 - CAPM versus APT What is the relationship between...Ch. 12 - Prob. 8CQCh. 12 - Data Mining What is data mining? Why might it...Ch. 12 - Prob. 10CQ
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