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Qation 2 Part 1 Given the following data: Expected return on the market index - 19 Standard deviation on the market index -20% Treasury hill rate-5% Casa Inc. common stock bota 2 Yale Inc. common stock - 1 Forecast retum for Cas-2015 Forecast retum for Yale = 17% Required: (a) Suate the Capital Asset Pricing Model (CAP) qution and explain what kinds of relationships it shows. Should you include standard des of returns in the calculation of the expected return on a security using CAPS! Why? Explain your answers within 100 Words 16 marki (b) Based on Capital Asset Pricing Model (CAPM should you recommend to buy or sell stock of Case and Yale respectively Support your roommations with all relevant calculations Conclude your answer within 4 wand (6 marks Pearl Yacht is considering a new project that requires $100.000 initial cash outlay and is expected to produce cash flores ef5480.000 per year for the next five years Sam, the finance manager, hired you as an interview the capital structure of the company. estimate its cost of capital and the not presentata for the project An extract of the capital structure on the statement of financial position of Pearl Yacht for the year ended 31 December 2020 as shown as below Statement of Financial Position Total Bond (semi-annual 5% coupon rate. St,000 per 12 years totaity) 2.100,000 Common stock (54 pur) 2.800.000 The current market price are 5880 for bonds and 55 25 forstock Pearl Yacht just paid the dividend of $0.1% per share to come stick that holders and the market expects that future dividends are projected to have growth rate of 596 indefinitely. The firm is in the 38% tax bracket Page 507 Question 2(continued Required: ca) Calculate Pearl Yacht's weighted average cost of capital (WACC) (b) Pearl Yacht estimates that the flotation costs cited with the equity finance would be 3% of all new equity capitalised and which she be deducted from itil cash outlay. Using the WACC computed in above part) as the appropriate discount rate under current capital structure estimate the set rent value (NPV) of the project

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