Assume that the CAPM is a good description of stock price returns. The market expected

return is 5% with 12% volatility and the risk-free rate is 3%. Refer to the information in the

able below. Which of the following stocks represent selling opportunities?

Taggart Transcontinental: re = 8% volatility = 28% Beta = 1.2

Rearden Metal: re = 13% volatility = 40% Beta = 1.7

Wyatt Oil: re = 7% volalility = 20% Beta = 0.8

Nelson: re = 10% volatility = 32% Beta = 1.3

A) 1 only

B) 1 and 2 only

C) 2 and 3 only

D) 2 and 4 only

2)

Shepard Industries is evaluating a proposal to expand its current distribution facilities. Management has projected the project will produce the following cash flows for the first two years (in millions). Year 1 2 Revenues 1200 1400 Operating Expense 450 525 Depreciation 240 280 Increase in working capital 60 70 Capital expenditures 300 350 Marginal corporate tax rate 30% 30% The free cash flow from Shepard Industries project in year one is closest to: A) $240 B) $300 C) -$5 D) $390