Hello .

I'm looking for assistance in Question 4 & 5. I'd like to understand the steps taken to solve for this. Please find attached the excel workbook. I'd really appreciate someone's help here as my exam is coming up soon!

Thanks in advance!

Question 1 (4 Marks) Richard must decide how to allocate the capital in his portfolio. Richard has $49,000 available to invest. He finds the rates of return for four stocks for the past 12 years and the results are given below. Richard plans to invest 25% of his funds in each stock. a) How much will he invest in each stock? $ Enter Answer (1 Mark) b) The expected value of Richard's porfolio is: Enter Answer % Enter Answer % (2 Marks)(Round your answer to one one-hundreth of a percent) c) The standard deviation of Richard's portfolio is: (1 Mark)(Round your answer to one one-hundredth of a percent) Year 1 2 3 4 5 6 7 8 9 10 11 12 Stock A (%) -4.460 9.080 12.880 12.880 -13.160 16.280 17.080 13.500 8.340 10.080 -5.070 -5.160 Stock B (%) -14.540 26.080 37.480 37.480 -40.640 47.680 50.080 39.340 23.860 29.080 -16.370 -16.640 Stock C (%) 4.560 -6.272 -9.312 -9.312 11.520 -12.032 -12.672 -9.808 -5.680 -7.072 5.048 5.120 Stock D (%) -1.960 4.810 6.710 6.710 -6.310 8.410 8.810 7.020 4.440 5.310 -2.265 -2.310 Enter your Final Answer Here Complete your rough work in the space below ) He will invest in each stock 25% of his funds in each stock. that means he has $49,000 available to invest in four stocks, i.e, Stock A = 49,000 * 25% = $12,250 and $12,250 each to stock B, stock C and stock D. b) The expected value of Richard's porfolio is: Note: The mean return, in securities analysis, is the expected value, ormean, of all the likely returns of investments comprising a portfolio. It is also known as "expected return". Formula for Expected value or return = (Sum of Average rate of return * weights i.e, allocation) Sum of Average rate of return = total of all returns / 12years stock A = 72.27 / 12 = 6.0225% stock B = 202.89 / 12 = 16.9075% stock C = 45.912 / 12 = 3.826% stock D = 39.375/ 12 = 3.28125% Therefore expected return = (Average return of stock * 25%) + (Average return of stock B * 25%) + (Average return of stock C * 25%) + (Average return of stock D * 25%) = (6.0225% * 25%) +(16.9075%*25%) + (3.826% * 25%) + (3.28125% * 25%) =0.015 + 0.042 0.010 + 0.008 = 0.055 Therefore, expected return = 5.5% Expected value = (Average return of stock * 25% of investment) + (Average return of stock B * 25% of investment) + (Average return of stock C * 25% of investment) + (Average return of stock D * 25% of investment) = (6.0225% * 12,250) +(16.9075%*12,250) + (3.826% * 12,250) + (3.28125% * 12,250) = 12,250 (6.0225% + 16.9075% 3.826% + 3.28125%) =12,250 * 22.38525% Therefore, Expected value = $2,742.193125 =$2,742. c) The standard deviation of Richard's portfolio is: Standard deviation () is found by taking the square root of variance formula for Variance = sum of weights (return expected return) 2 here er = expected return = 5.5% Stocks Weights = w Average return = r Variance = w ( rer)2 A 25% 6.0225% 0.25(6.0225% 5.5%) = 0.013% B 25% 16.9075% 0.25(16.9075% 5.5%)=0.029% C 25% 3.826% 0.25(3.826% 5.5%) = 0.023% D 25% 3.28125% 0.25(3.28125% 5.5%) = 0.055% Variance = sum of weights (return expected return)2 0.036 The variance for Newco's stock is -0.036 Standard deviation () = square root of variance =square root of -0.036 = 0.19 Therefore, Standard deviation () = 19% Question 2 (3 Marks) Anna is a Vice President at the J Corporation. The company is considering investing in a new factory and Anna must decide whether it is a feasible project. In order to assess the viability of the project, Anna must first calculate the rate a) What is the beta of J Corp.'s stock? (1 Mark)(Round your answer to two decimal places) b) Using the CAPM model, what is the expected rate of return on J Corp. stock for the coming year? (2 Mark)(Round your answer to one one-hundreth of a percent) Year 1 2 3 4 5 6 7 8 9 10 11 12 J Corp. Return (%) -3.76 7.07 10.11 10.11 -10.72 12.83 13.47 10.61 6.48 7.87 -4.25 -4.32 Market Return (%) -4.90 8.64 12.44 12.44 -13.60 15.84 16.64 13.06 7.90 9.64 -5.51 -5.60 Required rate of return= risk - free rate + Beta (Market Risk - premium) J corp ave return = [(-3.76+7.07+10.11+10.11-10.72+12.83+13.47+10.61+6.48+7.87-4.254.32)/12} 4.625 4.63% Calculate Stock Beta 4.625=3.76% + beta(4.63) 0.04625=0.00376 + beta(0.0463) 0.04625-0.00376= Beta *0.0463 Beta *0.0463 =0.04249 Beta = 0.04249/0.0463 0.917 Question 3 (3 Marks) Refer to Question 2. Now that Anna has determined an appropriate rate of return for J Corp.'s stock, she must calculate the firm's Weighted Average Cost of Capital (WACC). There are currently 51.6 Million J Corp. common shares outstanding. Each share is currently priced at $7.70. As well, the firm has 6,000 bonds outstanding and each bond has a face value of $10,000, a yield to maturity of 3.64% and a quoted price of $10,164.40. J Corp.'s tax rate is 30%. J Corp. has no preferred shares outstanding. What is J Corp's WACC? Outstanding 51,600,000 price at 1.1 /each # outstanding bonds =6000 Face (PAR) value = $10,000 Y/M =3.64% Quoted price =$10,164.40 J Corp tax rate = 30% Calculate Firm's Equity , debt value + weights Total equity value [51,600,000*7.7] = 397,320,000 Total debt value [6000*10,164.40] = 60,986,400 total market value = 397,320,000/336,333,600] = 1.181 Debt weight = [60,986,400/336,333,600= = 0.181 Weighted average cost of capital = [1.181*0.04625] + [0.181*3.64(10.300] (0.054621)+(0.181*3.64(0.7)] (0.054621)+(0.181*2.548) = (0.054621)+(0.4612) 0.516 Question 4 (5 Marks) . . . Refer to Questions 2 and 3. The land for the factory will cost $290,000. The factory will cost $6,440,000 to build and construction will take two years with construction costs payable in equal installments at the start of each year.. The factory will operate for 20 years; however, at the end of the fifth, tenth, and fifteenth year of operation, refurbishment costs will be $440,000. At the end of its 20 year lifespan, the land can be resold for $310,000. There is a 70% probability that the factory's net operating cash flows will be $675,162 however, there is a 30% chance that net cash flows will only be $413,362. You may assume that net operating cash flows flow at the end of each year. a) What are the Expected net operating cash flows per year? (1 Mark)(Round your answer to 2 decimal places) b) What is the Internal Rate of Return for the project? (1 Mark)(Round your answer to one one-hundreth of a percent) c) What is the Net Present Value of the project? (1 Mark)(Round your answer to 2 decimal places) d) Should Anna recommend that the J Corporation build the factory? (2 Marks) Y N Question 5 (5 Marks) 0.00 Refer to Questions 1 and 2. Richard has just received an unexpected bonus at work worth $12,250 and, given the J. Corp.'s reputation for excellent investment decision making, he will invest all of the bonus in J Corp. stock. Given the rates of return for stocks A, B, C, and D presented in Question 1 and the rates of return for J Corp. stock and the market presented in Question 2, as well as the cash amounts he is investing in stocks A, B, C, and D as you determined in Question 1, a) What is the beta of Richard's portfolio? (3 Marks) (round to two decimal points) b) Richard's portfolio is... (2 Marks) Enter Answer Aggressive Defensive } Check only Neither Enter your Final Answer Here Complete your rough work in the space below