PRIN.OF CORPORATE FINANCE
PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 7, Problem 1PS

Rate of return The level of the Syldavia market index is 21,000 at the start of the year and 25,500 at the end. The dividend yield on the index is 4.2%.

  1. a. What is the return on the index over the year?
  2. b. If the interest rate is 6%, what is the risk premium over the year?
  3. c. If the inflation rate is 8%, what is the real return on the index over the year?

a.

Expert Solution
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Summary Introduction

To compute: The return on the index over the year.

Explanation of Solution

The return on index over the year can be calculated using the following formula:

Return on index over the year}=(Dividend yield+Market index at the end of the yearMarket index at the beginning of the year)Market index at the  beginning of the year=4.2+255002100021000=25.62%

b.

Expert Solution
Check Mark
Summary Introduction

To compute: Risk premium over the year when the interest rate is 6%.

Explanation of Solution

Risk premium over the year can be calculated using the following formula:

Risk premium over the year=Return on index over the year-Interest rate=25.62  -6%=19.62%

c.

Expert Solution
Check Mark
Summary Introduction

To compute: The real return on the index over the year when the inflation rate is 8%.

Explanation of Solution

The real return on index over the year can be calculated using the following formula:

Real return=1+Return on index over the year1+Inflation1=1+25.62%1+8%1=16.31%

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no ai   do not answer this question if data is not clear or image is blurr. but do not amswer with unclear values. i will give unhelpful.
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?
no ai   do not answer this question if data is not clear or image is blurr. please comment i will write values . but do not amswer with unclear values. i will give unhelpful.
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