Question 1:

You have $23,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 12 percent and Stock Y with an expected return of 12.5 percent. If your goal is to create a portfolio with an expected return of 12.18 percent, how much money will you invest in Stock X? In Stock Y?

Question 3:

You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.44 and the total portfolio is equally as risky as the market, what must the beta be for the other stock in your portfolio?

Question 4:

A stock has a beta of 1.38, the expected return on the market is 10 percent, and the risk-free rate is 5 percent. What must the expected return on this stock be?

Question 5:

One Step, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 23 years to maturity that is quoted at 98 percent of face value. The issue makes semiannual payments and has a coupon rate of 6 percent. a. What is the company's pretax cost of debt? (Hint: find the YTM of the bond) b. If the tax rate is 24 percent, what is the after-tax cost of debt?

Question 6:

Kose, Inc., has a target debt-equity ratio of .57. Its WACC is 10.4 percent, and the tax rate is 25 percent. a. If the companys cost of equity is 15 percent, what is its pretax cost of debt? b. If instead you know that the after-tax cost of debt is 4.6 percent, what is the cost of equity?

Question 7:

Gunnar Corp. uses no debt. The weighted average cost of capital is 9 percent. If the current market value of the equity is $22 million and there are no taxes, what is EBIT?

Question 8:

Cede & Co. expects its EBIT to be $113,000 every year forever. The company can borrow at 8 percent. The company currently has no debt and its cost of equity is 15 percent. a. If the tax rate is 22 percent, what is the value of the company? b. What will the value be if the company borrows $245,000 and uses the proceeds to repurchase shares?