CAPITAL ASSET PRICING MODEL -

(A) Use Capital Asset Pricing Model (CAPM) to calculate the expected return on a stock that has a beta of 2.5 if the risk-free rate is 3 percent and the market portfolio is expected to pay 11 percent? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM FOR EXCEL).

BETA -

(B) Company X was a steel company for the first hundred years of its existence but it has been a health care company for the past 25 years. In estimating Company X current beta, why would you get an inaccurate beta if you used all 125 years of its stock returns? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM FOR EXCEL).

LEVERAGE -

(C) What legal aspect of corporate debt explains the fact that increasing your company's leverage (using more debt and less equity to finance your operations) will make your company's stock beta rise? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM FOR EXCEL).

WEIGHTED AVERAGE COST OF CAPITAL -

(D) Company Y is financed one third with debt and two thirds with equity. Company Y's expected return on equity is 12 percent and its expected return on debt is 6 percent. Company Y has a corporate tax rate of 33 percent. Calcualte Company Y's Weighted Average Cost of Capital (CACC)? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM FOR EXCEL).