The annual rate of return and average return over 5 years’ period. Introduction: The risk and return are two closely related terms. The risk is the uncertainty attached to an event. In case of any investment, there is some amount of risk attached to it as there can be either gain or loss. While return in the financial term is that percentage which represents the profit in an investment. Higher risk is associated with higher return and lower risk has a probability of lower return. The investor has to face a tradeoff between risk and return in terms of an investment. The annual rate of return refers to that return which is charged or is earned on an investment for a year. This rate is expressed in percentage.

Question

The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape guitar sides. The steamer has 6 years of remaining life. If kept, the steamer will have depreciation expenses of $700 for 5 years and $350 for the sixth year. Its current book value is $3,850, and it can be sold on an Internet auction site for $4,440 at this time. If the old steamer is not replaced, it can be sold for $800 at the end of its useful life. Gilbert is considering purchasing the Side Steamer 3000, a higher-end steamer, which costs $12,300, and has an estimated useful life of 6 years with an estimated salvage value of $1,200. This steamer falls into the MACRS 5-years class, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The new steamer is faster and allows for an output expansion, so sales would rise by $2,000 per year; the new machine's much greater efficiency would reduce operating expenses by $1,800 per year. To support the…

Answer 1

Question

Chapter 8, Problem 22SP

a)

Summary Introduction

To determine: The annual rate of return and average return over 5 years’ period.

Introduction:

The risk and return are two closely related terms. The risk is the uncertainty attached to an event. In case of any investment, there is some amount of risk attached to it as there can be either gain or loss. While return in the financial term is that percentage which represents the profit in an investment.

Higher risk is associated with higher return and lower risk has a probability of lower return. The investor has to face a tradeoff between risk and return in terms of an investment.

The annual rate of return refers to that return which is charged or is earned on an investment for a year. This rate is expressed in percentage.

b)

Summary Introduction

To prepare: The standard deviation for the given data.

Introduction:

The standard deviation refers to the stand-alone risk associated with the securities. It measures how much a data is dispersed with its standard value. The Greek letter sigma represents the standard deviation.

c)

Summary Introduction

To determine: The coefficient of variation.

Introduction:

The coefficient of variation is a tool to determine the investment’s volatility.

d)

Summary Introduction

To determine: Sharpe ratio

Introduction:

Sharpe ratio helps to determine the performance of the investment.

e)

Summary Introduction

To prepare: A scatter diagram showing the company’s returns and the index returns.

f)

Summary Introduction

To determine: The beta of the B Industries and R Inc. by running regressions of their returns.

g)

Summary Introduction

To determine: The required returns of the two companies by security market line equation.

h)

Summary Introduction

To determine: The beta and the required return for a newly constructed portfolio.

i)

Summary Introduction

To determine: The new portfolio’s required return.

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The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape guitar sides. The steamer has 6 years of remaining life. If kept, the steamer will have depreciation expenses of $700 for 5 years and $350 for the sixth year. Its current book value is $3,850, and it can be sold on an Internet auction site for $4,440 at this time. If the old steamer is not replaced, it can be sold for $800 at the end of its useful life. Gilbert is considering purchasing the Side Steamer 3000, a higher-end steamer, which costs $12,300, and has an estimated useful life of 6 years with an estimated salvage value of $1,200. This steamer falls into the MACRS 5-years class, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The new steamer is faster and allows for an output expansion, so sales would rise by $2,000 per year; the new machine's much greater efficiency would reduce operating expenses by $1,800 per year. To support the…

St. Johns River Shipyards' welding machine is 15 years old, fully depreciated, and has no salvage value. However, even though it is old, it is still functional as originally designed and can be used for quite a while longer. A new welder will cost $181,500 and have an estimated life of 8 years with no salvage value. The new welder will be much more efficient, however, and this enhanced efficiency will increase earnings before depreciation from $28,000 to $78,500 per year. The new machine will be depreciated over its 5-year MACRS recovery period, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The applicable corporate tax rate is 25%, and the project cost of capital is 13%. What is the NPV if the firm replaces the old welder with the new one? Do not round intermediate calculations. Round your answer to the nearest dollar. Negative value, if any, should be indicated by a minus sign.

Ends Apr 27 Explain why we start with Sales forecasts when we do our financial forecasting. What are the limitations of the Percent of Sales Forecasting method?

Answer 2

Question

Chapter 8, Problem 22SP

a)

Summary Introduction

To determine: The annual rate of return and average return over 5 years’ period.

Introduction:

The risk and return are two closely related terms. The risk is the uncertainty attached to an event. In case of any investment, there is some amount of risk attached to it as there can be either gain or loss. While return in the financial term is that percentage which represents the profit in an investment.

Higher risk is associated with higher return and lower risk has a probability of lower return. The investor has to face a tradeoff between risk and return in terms of an investment.

The annual rate of return refers to that return which is charged or is earned on an investment for a year. This rate is expressed in percentage.

b)

Summary Introduction

To prepare: The standard deviation for the given data.

Introduction:

The standard deviation refers to the stand-alone risk associated with the securities. It measures how much a data is dispersed with its standard value. The Greek letter sigma represents the standard deviation.

c)

Summary Introduction

To determine: The coefficient of variation.

Introduction:

The coefficient of variation is a tool to determine the investment’s volatility.

d)

Summary Introduction

To determine: Sharpe ratio

Introduction:

Sharpe ratio helps to determine the performance of the investment.

e)

Summary Introduction

To prepare: A scatter diagram showing the company’s returns and the index returns.

f)

Summary Introduction

To determine: The beta of the B Industries and R Inc. by running regressions of their returns.

g)

Summary Introduction

To determine: The required returns of the two companies by security market line equation.

h)

Summary Introduction

To determine: The beta and the required return for a newly constructed portfolio.

i)

Summary Introduction

To determine: The new portfolio’s required return.

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Answer 3

Question

Chapter 8, Problem 22SP

a)

Summary Introduction

To determine: The annual rate of return and average return over 5 years’ period.

Introduction:

The risk and return are two closely related terms. The risk is the uncertainty attached to an event. In case of any investment, there is some amount of risk attached to it as there can be either gain or loss. While return in the financial term is that percentage which represents the profit in an investment.

Higher risk is associated with higher return and lower risk has a probability of lower return. The investor has to face a tradeoff between risk and return in terms of an investment.

The annual rate of return refers to that return which is charged or is earned on an investment for a year. This rate is expressed in percentage.

b)

Summary Introduction

To prepare: The standard deviation for the given data.

Introduction:

The standard deviation refers to the stand-alone risk associated with the securities. It measures how much a data is dispersed with its standard value. The Greek letter sigma represents the standard deviation.

c)

Summary Introduction

To determine: The coefficient of variation.

Introduction:

The coefficient of variation is a tool to determine the investment’s volatility.

d)

Summary Introduction

To determine: Sharpe ratio

Introduction:

Sharpe ratio helps to determine the performance of the investment.

e)

Summary Introduction

To prepare: A scatter diagram showing the company’s returns and the index returns.

f)

Summary Introduction

To determine: The beta of the B Industries and R Inc. by running regressions of their returns.

g)

Summary Introduction

To determine: The required returns of the two companies by security market line equation.

h)

Summary Introduction

To determine: The beta and the required return for a newly constructed portfolio.

i)

Summary Introduction

To determine: The new portfolio’s required return.

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Answer 4

Question

Chapter 8, Problem 22SP

a)

Summary Introduction

To determine: The annual rate of return and average return over 5 years’ period.

Introduction:

The risk and return are two closely related terms. The risk is the uncertainty attached to an event. In case of any investment, there is some amount of risk attached to it as there can be either gain or loss. While return in the financial term is that percentage which represents the profit in an investment.

Higher risk is associated with higher return and lower risk has a probability of lower return. The investor has to face a tradeoff between risk and return in terms of an investment.

The annual rate of return refers to that return which is charged or is earned on an investment for a year. This rate is expressed in percentage.

b)

Summary Introduction

To prepare: The standard deviation for the given data.

Introduction:

The standard deviation refers to the stand-alone risk associated with the securities. It measures how much a data is dispersed with its standard value. The Greek letter sigma represents the standard deviation.

c)

Summary Introduction

To determine: The coefficient of variation.

Introduction:

The coefficient of variation is a tool to determine the investment’s volatility.

d)

Summary Introduction

To determine: Sharpe ratio

Introduction:

Sharpe ratio helps to determine the performance of the investment.

e)

Summary Introduction

To prepare: A scatter diagram showing the company’s returns and the index returns.

f)

Summary Introduction

To determine: The beta of the B Industries and R Inc. by running regressions of their returns.

g)

Summary Introduction

To determine: The required returns of the two companies by security market line equation.

h)

Summary Introduction

To determine: The beta and the required return for a newly constructed portfolio.

i)

Summary Introduction

To determine: The new portfolio’s required return.

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Answer 5

Chapter 8, Problem 22SP

a)

Summary Introduction

To determine: The annual rate of return and average return over 5 years’ period.

Introduction:

The risk and return are two closely related terms. The risk is the uncertainty attached to an event. In case of any investment, there is some amount of risk attached to it as there can be either gain or loss. While return in the financial term is that percentage which represents the profit in an investment.

Higher risk is associated with higher return and lower risk has a probability of lower return. The investor has to face a tradeoff between risk and return in terms of an investment.

The annual rate of return refers to that return which is charged or is earned on an investment for a year. This rate is expressed in percentage.

b)

Summary Introduction

To prepare: The standard deviation for the given data.

Introduction:

The standard deviation refers to the stand-alone risk associated with the securities. It measures how much a data is dispersed with its standard value. The Greek letter sigma represents the standard deviation.

c)

Summary Introduction

To determine: The coefficient of variation.

Introduction:

The coefficient of variation is a tool to determine the investment’s volatility.

d)

Summary Introduction

To determine: Sharpe ratio

Introduction:

Sharpe ratio helps to determine the performance of the investment.

e)

Summary Introduction

To prepare: A scatter diagram showing the company’s returns and the index returns.

f)

Summary Introduction

To determine: The beta of the B Industries and R Inc. by running regressions of their returns.

g)

Summary Introduction

To determine: The required returns of the two companies by security market line equation.

h)

Summary Introduction

To determine: The beta and the required return for a newly constructed portfolio.

i)

Summary Introduction

To determine: The new portfolio’s required return.

Answer 6

Chapter 8, Problem 22SP

a)

Summary Introduction

To determine: The annual rate of return and average return over 5 years’ period.

Introduction:

The risk and return are two closely related terms. The risk is the uncertainty attached to an event. In case of any investment, there is some amount of risk attached to it as there can be either gain or loss. While return in the financial term is that percentage which represents the profit in an investment.

Higher risk is associated with higher return and lower risk has a probability of lower return. The investor has to face a tradeoff between risk and return in terms of an investment.

The annual rate of return refers to that return which is charged or is earned on an investment for a year. This rate is expressed in percentage.

Answer 7

Chapter 8, Problem 22SP

a)

Summary Introduction

To determine: The annual rate of return and average return over 5 years’ period.

Introduction:

The risk and return are two closely related terms. The risk is the uncertainty attached to an event. In case of any investment, there is some amount of risk attached to it as there can be either gain or loss. While return in the financial term is that percentage which represents the profit in an investment.

Higher risk is associated with higher return and lower risk has a probability of lower return. The investor has to face a tradeoff between risk and return in terms of an investment.

The annual rate of return refers to that return which is charged or is earned on an investment for a year. This rate is expressed in percentage.

Answer 8

b)

Summary Introduction

To prepare: The standard deviation for the given data.

Introduction:

The standard deviation refers to the stand-alone risk associated with the securities. It measures how much a data is dispersed with its standard value. The Greek letter sigma represents the standard deviation.

Answer 9

b)

Summary Introduction

To prepare: The standard deviation for the given data.

Introduction:

The standard deviation refers to the stand-alone risk associated with the securities. It measures how much a data is dispersed with its standard value. The Greek letter sigma represents the standard deviation.

Answer 10

c)

Summary Introduction

To determine: The coefficient of variation.

Introduction:

The coefficient of variation is a tool to determine the investment’s volatility.

Answer 11

c)

Summary Introduction

To determine: The coefficient of variation.

Introduction:

The coefficient of variation is a tool to determine the investment’s volatility.

Answer 12

d)

Summary Introduction

To determine: Sharpe ratio

Introduction:

Sharpe ratio helps to determine the performance of the investment.

Answer 13

d)

Summary Introduction

To determine: Sharpe ratio

Introduction:

Sharpe ratio helps to determine the performance of the investment.

Answer 14

e)

Summary Introduction

To prepare: A scatter diagram showing the company’s returns and the index returns.

Answer 15

e)

Summary Introduction

To prepare: A scatter diagram showing the company’s returns and the index returns.

Answer 16

f)

Summary Introduction

To determine: The beta of the B Industries and R Inc. by running regressions of their returns.

Answer 17

f)

Summary Introduction

To determine: The beta of the B Industries and R Inc. by running regressions of their returns.

Answer 18

g)

Summary Introduction

To determine: The required returns of the two companies by security market line equation.

Answer 19

g)

Summary Introduction

To determine: The required returns of the two companies by security market line equation.

Answer 20

h)

Summary Introduction

To determine: The beta and the required return for a newly constructed portfolio.

Answer 21

h)

Summary Introduction

To determine: The beta and the required return for a newly constructed portfolio.

Answer 22

i)

Summary Introduction

To determine: The new portfolio’s required return.

Answer 23

i)

Summary Introduction

To determine: The new portfolio’s required return.

Answer 24

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Concept explainers

To prepare: The standard deviation for the given data.

Introduction:

The standard deviation refers to the stand-alone risk associated with the securities. It measures how much a data is dispersed with its standard value. The Greek letter sigma represents the standard deviation.

To determine: The coefficient of variation.

Introduction:

The coefficient of variation is a tool to determine the investment’s volatility.

To determine: Sharpe ratio

Introduction:

Sharpe ratio helps to determine the performance of the investment.

To prepare: A scatter diagram showing the company’s returns and the index returns.

To determine: The beta of the B Industries and R Inc. by running regressions of their returns.

To determine: The required returns of the two companies by security market line equation.

To determine: The beta and the required return for a newly constructed portfolio.

To determine: The new portfolio’s required return.

Chapter 8 Solutions

Concept explainers

To prepare: The standard deviation for the given data. Introduction: The standard deviation refers to the stand-alone risk associated with the securities. It measures how much a data is dispersed with its standard value. The Greek letter sigma represents the standard deviation.

To determine: The coefficient of variation. Introduction: The coefficient of variation is a tool to determine the investment’s volatility.

To determine: Sharpe ratio Introduction: Sharpe ratio helps to determine the performance of the investment.

To prepare: A scatter diagram showing the company’s returns and the index returns.

To determine: The beta of the B Industries and R Inc. by running regressions of their returns.

To determine: The required returns of the two companies by security market line equation.

To determine: The beta and the required return for a newly constructed portfolio.

To determine: The new portfolio’s required return.

Chapter 8 Solutions

To prepare: The standard deviation for the given data.

Introduction:

The standard deviation refers to the stand-alone risk associated with the securities. It measures how much a data is dispersed with its standard value. The Greek letter sigma represents the standard deviation.

To determine: The coefficient of variation.

Introduction:

The coefficient of variation is a tool to determine the investment’s volatility.

To determine: Sharpe ratio

Introduction:

Sharpe ratio helps to determine the performance of the investment.