1. may you help me to solve these Q

T or F

1. Junk bond returns are less correlated than investment grade bond returns.
2. Shake Shack was originally funded by venture capital.
3. A value stock would likely have a low price/book ratio.
4. The b of a long equity index fund that tracks the S&P 500 should be close to one.
5. The R² of a long equity index fund that tracks the S&P 500 should be close to one.
6. A firms enterprise value cannot be smaller than its market capitalization.

• The US public bond market is larger than the US public equity market.

The long-term average abnormal return on an IPO is significantly negative.

1. A firm can deduct its dividend payments from its taxable income.

• A risky firm would have a low EBITDA multiple.

1. Since 1990, the average initial-day return on IPOs of firms with positive earnings is higher than the average initial-day return on IPOs of firms with negative earnings.
2. Since 1990, the average $-volume of SEOs has been about twice as large as the average volume of IPOs.
3. A firm in a low risk industry like food processing could not have a very high beta (e.g., b > 2).

1. Assume that a $5 billion firm has equal amounts of debt and equity. If the firm issues $1 billion in equity to retire debt, which of the following will decrease? a. WACC b. Unlevered beta c. Levered beta d. None of the above e. All of the above f. Hodor, Hodor,

1. Since 2010, the average riskfree rate (yield on one-year US Tbills) has been a. .025% b. .25% c. 2.5% d. 25%
2. Place the following assets in terms of lowest to highest amount issued by US firms over the last decade. I. Preferred stock II. Common stock III. Debt a. I, II, III b. II, III, I c. III, II, I d. III, I, II e. None of the above
3. Which of the following bonds has the highest duration? a. 5-year zero-coupon b. 5-year 6% coupon c. 20-year zero-coupon d. 20-year 8% coupon e. James Bond

Assume a $1 billion Swedish food processing firm has equal amounts of debt and equity, a beta of 1 and a tax rate of .2. Assume the riskless return is 4% and the expected equity risk premium is 6%. What would be the cost of equity of a Swedish firm of comparable size in the same industry but with zero debt?

Looking at the beta graph above, does the CAPM adequately explain the firms returns?

Looking at the beta graph above, has the firm over- or under-performed over this time period?

1. If the expected excess return on the S&P500 was -10% next year, what is this stocks expected excess return for next year?

Assume that a firm has the following cash flows for the next 3 years: 100, 110 and 120. After year 3 its cash flows will be constant at 120. The firms capital structure is currently equal parts debt and equity with the yield on its debt = .05; b = 1.5; tax rate = .2; the expected equity risk premium = .06 and the riskfree return = .01.

What is the firms WACC?

What would be the current estimated value of the firm assuming it was acquired using all equity financing?

The following 4 questions use the following data:

There are 10 million common shares with a market value of $50 per share

There are 500,000 bonds outstanding; the bonds have exactly 8 years to maturity; a 4% annual coupon (the next coupon comes in exactly one year); par value = $1000; the bond yield is 5%

b = 1.8; the riskfree rate is 3%; the equity risk premium = 7%

The tax rate = 20%

What is the firms market value of debt?

What is the firms cost of equity?

What is the firms current WACC?

What would the firms WACC be if it issued $.2 billion in equity to repurchase $.2 billion in debt? (Assume the new bond yield would be 4.5%)

Suppose you have gathered the following data on 2 large U.S. drug companies: Pfizer and Merck. We are trying to use the market prices of Pfizer to tell us something about the market price of Merck. We have the following data (in $-billions)

Market cap.	Debt	Cash	Net income	EBITDA	Revenue
Merck	?	20.6	16.1	6.2	17.4	47.3
Pfizer	202.4	37.5	32.7	9.5	26.2	59.0