A.

B. THIS PROBLEM INCLUDES 3 PARTS. 1.If the risk-free rate (as reflected by Company X returns) is 0.10, the average market return (as indicated by the 1-year return on Company Z) is 20.63, and the company has a beta coefficient of 0.74, what is the appropriate required return (rounded to two decimal places)? 2. Assume the following for stock XYZ: rfr = 3% rm = 10% B = 0.75 By using CAPM, calculate the required rate of return to decide to invest in XYZ: 3. Amandeep wants to calculate the expected rate of return for security for her work as a freelance investment banker. Lovepreet has the following figures to calculate the required rate of return using CAPM: the risk-free rate is 4%, the expected return of the market is 12%, and the systematic risk b of the security is 1.3. SHOW ALL YOUR STEPS AND CALCULATIONS. -So what does this mean to the potential investor? -What are the conclusions you can say about CAPM?

PART 2- PROBLEMS 40 points Element of competency: 1) Perform the financial tasks of an operation supply 2) Produce financial reports Problem 1 (20 points) Consider the below table. All monetary values are in CAD. Current Plan CAD 5 million CADO CAD 5 million 0 CAD 350000 Proposed Plan CAD 5 million CAD 1500000 CAD 3500000 CALCULATE CAD 500000 CAD 580000 CAD 670000 Assets Debt Equity Debt to Equity Ratio Net Sales Revenue (Recession) Net Sales Revenue (Expansion) Shares Outstanding Total Expenses (Recession) Total Expenses (Expansion) Interest Rate 150000 CAD 120000 100000 CAD 280000 CAD 180000 CAD 310000 5% 5% Required: 1) Calculate the Debt to Equity Ratio for the proposed plan. 2) Prepare the current capital structure and the proposed capital structure. Compare between both structures under the 2 given economic situations. 3) What is the variability in ROE and EPS. Explain with numbers. 4) Calculate the breakeven EBIT. Interpret your results. 5) Based on your calculation, why is leveraging essential in financial decisions? 6) Is there risk of financial distress for this company. Explain in details