1. Wrote Analysts has just used the CAPM model to compute an r_E of 18.679% for the VaperWare company. It found r_E by, among other things, computing Beta from a regression between the historical stock returns of Vaperware and the SPY ETF. The R² of this regression was 12%.

What could possibly be problematic with WroteAnalysts' estimated r_E for the VaperWare company?

B) and C)

B) and D)

C) The R² of the regression used to compute Beta is too small to make the regression (and Beta) meaningful.

A) Nothing is wrong, based on the information given, but more info is needed fully answer this question.

D) The CAPM model has been supersceded as a "best practice" model by the economic equivalent model.

B) The future returns of SPY and/orVaperWare may not be well represented by historical returns.

B), C), and D)

2. You (as a private equity investor) note that GoodCo REIT is a decent-looking, debt-free company, that is not managed very well. You are therefore considering this project: - Buy 100% of GoodCo today for $1,000K - Receive estimated GoodCo dividends of $50K for the next two years (at EOY 1 and EOY 2). - Sell the firm at EOY 2, just after you receive the EOY 2 dividend. - You estimate that, do to your awesome management improvements, them market price of the firm will be $1,200K when you sell. - You believe, based on your CAPM analysis, that rE for the firm is 12.00%

What is the NPV of this project?

As always, use the given units. Represent your answer to two decimal places.