i Stock X has an expected return of 20 percent, a beta coefficient of 2.3. Stock Y has an expected return of 19 percent and a beta coefficient of 2.2. The risk-free rate is 2 percent and the required return on the overall market is 10 percent. On the basis of the two stocks' expected and required returns, which stock(s) would be attractive to a diversified investor? a. Both stocks are attractive to a diversified investor. b. Neither stock is attractive to a diversified investor. c. Stock X only; the expected return for X exceeds the expected return for Y. d. Stock Y only; the required return for Y exceeds its expected return by 0.6%. e. Stock X only; its required return is 0.4% higher than X's expected return. ii Analysts predict that Schauer Corporation will have the following free cash flows (FCFS) for Years 1 through 3 under the skillful management of Travis Schauer. After Year 3, FCF is expected to grow at a constant 12 percent rate forever. The company's WACC is 14 percent. Suppose the company has $160 million of debt and 5 million shares of stock outstanding, what is your estimate of the price per share? 0 1 2 3 4 +8 mil. -2 mil. +22 mil. a. $117.95 b. $138.38 c. $170.38 d. $152.44 e. $108.44 iii Gabriel Lombardo just retired today. He is going to take out a withdrawal of $150,000 today to fund his quest for extreme sports for 3 years. Then he will make 30 annual unequal withdrawals from his savings with the first withdrawal occurring at t=2. He wants each withdrawal to have the same purchasing power as $70,000 has today so the withdrawals need to grow at a constant rate of 3% to compensate for expected inflation per year. His savings account earns 9% per year. How much needs to be in his savings account today in order for him to be able to withdraw $150,000 today and make 30 additional withdrawals (from t=2 through t=31)? Round all calculations to the nearest dollar. 2 3 32 33 0 1 31 - 150K 0 W W2 W30 a. $1,125,232 b. $1,259,406 c. $ 1,077,781 d. $1,143,928 e. $777,781