80.2K

Verified Solution

Link Copied!

5.

Portfolio Beta You own $22,500 of City Steel stock that has a beta of 3.33. You also own $39,000 of Rent-N-Co (beta = 1.78) and $20,800 of Lincoln Corporation (beta = -.82). What is the beta of your portfolio?

4.86

1.55

4.29

1.00

6.

Portfolio Return At the beginning of the month, you owned $10,100 of Company G, $10,200 of Company S, and $15,400 of Company N. The monthly returns for Company G, Company S, and Company N were 9.4 percent, -1.27 percent, and 9.3 percent. What is your portfolio return? (Round intermediate calculations to 2 decimal places.)

17.45%

6.66%

5.82%

6.26%

7.

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 10 percent, and that the maximum allowable payback and discounted payback statistic for the project are 2 and 3 years, respectively.

Time	0	1	2	3	4	5	6
Cash Flow	-1,070	100	500	700	700	300	700

Use the discounted payback decision rule to evaluate this project; should it be accepted or rejected?

3.08 years, reject

2.83 years, accept

2.92 years, accept

3.09 years, reject

8.

Portfolio Weights If you own 330 shares of Air Line Inc at $19.65, 260 shares of BuyRite at $10.6, and 440 shares of Motor City at $46.65, what are the portfolio weights of each stock?

Air Line = .2178, BuyRite = .0926, MotorCity = .6896

Air Line = .3333, BuyRite = .3333, MotorCity = .3333

Air Line = .3300, BuyRite = .2600, MotorCity = .4400

Air Line = .3204, BuyRite = .2524, MotorCity = .4272

9.

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 12 percent, and that the maximum allowable payback and discounted payback statistic for the project are 2 and 3 years, respectively.

Time	0	1	2	3	4	5	6
Cash Flow	-1,150	30	570	770	770	370	770

Use the NPV decision rule to evaluate this project; should it be accepted or rejected?

$2,118.66, accept

$864.87, accept

$-495.13, reject

$968.66, accept

10.

JackITs has 5.6 million shares of common stock outstanding, 1.6 million shares of preferred stock outstanding, and 26.00 thousand bonds. If the common shares are selling for $28.60 per share, the preferred share are selling for $14.10 per share, and the bonds are selling for 97.94 percent of par, what would be the weight used for equity in the computation of JackIT's WACC?

77.50%

33.33%

76.93%

66.67%

Answer & Explanation Solved by verified expert

See Answer