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B D E F Richard must decide how to allocate the capital in his portfolio. Richard has $70,000 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? (1 Mark) b) The expected return of Richard's porfolio is: 02 Marks) Round your answer to one one-hundreth of a percent) 1 c) The standard deviation of Richard's portfolio return is: 2 (1 Mark)(Round your answer to one one-hundredth of a percent) 3 4 Year 5 6 2 7 3 8 4 9 5 6 7 2 8 9 24 10 25 11 26 12 27 28 29 30 31 32 Stock A (%) 6.140 11.820 13.320 8.320 -10.740 16 250 26.300 13.720 10.460 12.820 -4.180 2.740 Stock B (%) -19.990 33.890 38.390 23.390 -33.790 47 180 77.330 39.590 29.810 36.890 14.110 -9.790 Stock C (%) 5.600 -8.768 -9.968 -5.968 9.280 -12.312 -20.352 -10.288 7.680 -9.568 4.032 2.880 Stock D (%) -2.720 6.260 7.010 4.510 -5.020 8.475 13.500 7210 5.580 6.760 -1.740 1,020 Complete yo 2 Anna is a Vice President at the J Corporation. The company is considering 3 investing in a new factory and Anna must decide whether it is a feasible 4 project. In order to assess the viability of the project, Anna must first calculate 5 the rate of return that equity holders expect from the company stock. The 6 annual returns for J Corp. and for a market index are given below. Currently, 7 the risk-free rate of return is 2.2% and the market risk-premium is 4.6% 8 9 a) What is the beta of J Corp.'s stock? 10 (1 MarkX(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 11 coming year? 12 (2 Marks/Round your answer to one one-hundreth of a percent) J Corp Market Retum (%) Return (%) -5.03 13 14 15 16 Year 1 2 3 4 5 6 7 17 18 19 20 21 22 23 24 25 26 27 28 9.34 10.54 6.54 -8.71 12.88 20.92 10.86 8.25 10.14 -3.46 -2.31 -6.80 11.16 12.66 7.66 -11.40 15.59 25.64 13.06 9.80 12.16 -4.84 -3.40 9 10 11 12 Complete your rough work in the space below Title Page Question 1 Quostion 2 Question 3 Question 4 Question 5 E F G 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 58.2 Million J Corp. common shares outstanding. Each share is currently priced at $18.01 As well, the firm has 3,000 bonds outstanding and each bond has a face value of $10,000, a yield to maturity of 3.16% and a quoted price of $10,416.60.J Corp.'s tax rate is 30%. - J Corp. has no preferred shares outstanding. Enter Answer 1 Enter your Final Answer Here 5 - What is J Corp.'s WACC? 2 (Round your answer to one one-hundredth of a percent) 3 4 Complete your rough work in the space below 6 7 8 19 20 21 22 23 24 25 26 27 Title Page A Question 1 Question 2 Question 3 Question 4 Question 6 Al A 8 D F G 7 E 1 Question 4 (5 Marks) 2 Refer to Questions 2 and 3. The land for the factory will cost $1,280,000 3 The factory will cost $2,460,000 to build and construction will take two 4 years with construction costs payable in equal installments at the start of each 5 year. The factory will operate for 20 years. At the end of its 20 year lifespan. 6 the land can be resold for $900,000 8 There is a 70% probability that the factory's net operating cash flows will be 9 $535,076 ; however, there is a 30% chance that net cash flows will only be 10 $223,304 You may assume that net operating cash flows are received at the 11 end of each year. 12 13 a) What are the Expected net operating cash flows per year? 14 1 Marky(Round your answer to 2 decimal places) 15 b) What is the Internal Rate of Return for the project? 16 (1 Mark Round your answer to one one-hundreth of a percent) 17 c) What is the Net Present Value of the project? 18 (1 Mark (Round your answer to 2 decimal places) 20 d) Should Anna recommend that the J Corporation build the factory? 21 (2 Marks) Enter Enter Enter 19 Yes LI 22 No 23 24 Complete your rough work in the space below 25 26 27 28 20 30 Title Page Question 1 Question 2 A Question 3 Question 4 A Question 6 Ready E F H A B C D F G Question 5 (5 Marks) 2 Refer to Questions 1 and 2. Richard has just received an unexpected 3 bonus at work worth $17,500 and, given the J. Corp.'s reputation 4 for excellent investment decision making, he will invest all of the bonus 5 in J Corp. stock. Given the rates of return for stocks A, B, C, and D 6 presented in Question 1 and the rates of return for J Corp. stock and 7 the market presented in Question 2, as well as the cash amounts he 8 is investing in stocks A, B, C, and D as you determined in Question 1, 9 10 a) What is the beta of Richard's portfolio? (3 Marks) Enter Ansi 11 (round to two decimal points) 12 13 b) Richard's portfolio is... (2 Mark) Aggressive 14 Defensive 15 Neither 16 1 17 Enter your Final Ans 18 Complete your rough work in the space below 19 20 21 22 23 24 25 26 27 28 29 30 A Title Page A Question 1 Question 2 Question 3 Question 4 Question 5 Ready B D E F Richard must decide how to allocate the capital in his portfolio. Richard has $70,000 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? (1 Mark) b) The expected return of Richard's porfolio is: 02 Marks) Round your answer to one one-hundreth of a percent) 1 c) The standard deviation of Richard's portfolio return is: 2 (1 Mark)(Round your answer to one one-hundredth of a percent) 3 4 Year 5 6 2 7 3 8 4 9 5 6 7 2 8 9 24 10 25 11 26 12 27 28 29 30 31 32 Stock A (%) 6.140 11.820 13.320 8.320 -10.740 16 250 26.300 13.720 10.460 12.820 -4.180 2.740 Stock B (%) -19.990 33.890 38.390 23.390 -33.790 47 180 77.330 39.590 29.810 36.890 14.110 -9.790 Stock C (%) 5.600 -8.768 -9.968 -5.968 9.280 -12.312 -20.352 -10.288 7.680 -9.568 4.032 2.880 Stock D (%) -2.720 6.260 7.010 4.510 -5.020 8.475 13.500 7210 5.580 6.760 -1.740 1,020 Complete yo 2 Anna is a Vice President at the J Corporation. The company is considering 3 investing in a new factory and Anna must decide whether it is a feasible 4 project. In order to assess the viability of the project, Anna must first calculate 5 the rate of return that equity holders expect from the company stock. The 6 annual returns for J Corp. and for a market index are given below. Currently, 7 the risk-free rate of return is 2.2% and the market risk-premium is 4.6% 8 9 a) What is the beta of J Corp.'s stock? 10 (1 MarkX(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 11 coming year? 12 (2 Marks/Round your answer to one one-hundreth of a percent) J Corp Market Retum (%) Return (%) -5.03 13 14 15 16 Year 1 2 3 4 5 6 7 17 18 19 20 21 22 23 24 25 26 27 28 9.34 10.54 6.54 -8.71 12.88 20.92 10.86 8.25 10.14 -3.46 -2.31 -6.80 11.16 12.66 7.66 -11.40 15.59 25.64 13.06 9.80 12.16 -4.84 -3.40 9 10 11 12 Complete your rough work in the space below Title Page Question 1 Quostion 2 Question 3 Question 4 Question 5 E F G 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 58.2 Million J Corp. common shares outstanding. Each share is currently priced at $18.01 As well, the firm has 3,000 bonds outstanding and each bond has a face value of $10,000, a yield to maturity of 3.16% and a quoted price of $10,416.60.J Corp.'s tax rate is 30%. - J Corp. has no preferred shares outstanding. Enter Answer 1 Enter your Final Answer Here 5 - What is J Corp.'s WACC? 2 (Round your answer to one one-hundredth of a percent) 3 4 Complete your rough work in the space below 6 7 8 19 20 21 22 23 24 25 26 27 Title Page A Question 1 Question 2 Question 3 Question 4 Question 6 Al A 8 D F G 7 E 1 Question 4 (5 Marks) 2 Refer to Questions 2 and 3. The land for the factory will cost $1,280,000 3 The factory will cost $2,460,000 to build and construction will take two 4 years with construction costs payable in equal installments at the start of each 5 year. The factory will operate for 20 years. At the end of its 20 year lifespan. 6 the land can be resold for $900,000 8 There is a 70% probability that the factory's net operating cash flows will be 9 $535,076 ; however, there is a 30% chance that net cash flows will only be 10 $223,304 You may assume that net operating cash flows are received at the 11 end of each year. 12 13 a) What are the Expected net operating cash flows per year? 14 1 Marky(Round your answer to 2 decimal places) 15 b) What is the Internal Rate of Return for the project? 16 (1 Mark Round your answer to one one-hundreth of a percent) 17 c) What is the Net Present Value of the project? 18 (1 Mark (Round your answer to 2 decimal places) 20 d) Should Anna recommend that the J Corporation build the factory? 21 (2 Marks) Enter Enter Enter 19 Yes LI 22 No 23 24 Complete your rough work in the space below 25 26 27 28 20 30 Title Page Question 1 Question 2 A Question 3 Question 4 A Question 6 Ready E F H A B C D F G Question 5 (5 Marks) 2 Refer to Questions 1 and 2. Richard has just received an unexpected 3 bonus at work worth $17,500 and, given the J. Corp.'s reputation 4 for excellent investment decision making, he will invest all of the bonus 5 in J Corp. stock. Given the rates of return for stocks A, B, C, and D 6 presented in Question 1 and the rates of return for J Corp. stock and 7 the market presented in Question 2, as well as the cash amounts he 8 is investing in stocks A, B, C, and D as you determined in Question 1, 9 10 a) What is the beta of Richard's portfolio? (3 Marks) Enter Ansi 11 (round to two decimal points) 12 13 b) Richard's portfolio is... (2 Mark) Aggressive 14 Defensive 15 Neither 16 1 17 Enter your Final Ans 18 Complete your rough work in the space below 19 20 21 22 23 24 25 26 27 28 29 30 A Title Page A Question 1 Question 2 Question 3 Question 4 Question 5 Ready