SECTION B Answer any FOUR questions in this section. Each whole question carries FIVE marks Acme Corporation has a beta of 2.0. The standard deviation of the market portfolio is 20% and Acme has a standard deviation of 50% a. Estimate the correlation between Acme and the market portfolio (3 marks) (2 marks) b. What proportion of Acme's risk is specific risk? Safecorp currently has 500 million in debt and the market value of its equity is 800 million Beta of its stock is 1.20. The company is planning a leveraged buyout (LBO) that will increase its debt-to-equity ratio to 5. If the marginal tax rate is 20%, what will be the equity beta of the firm after the LBO? (5 marks) 3. Beta plc is in steady state and has book value of equity of 500m. Its return on equity is 10%, cost of equity is 8%, and the payout ratio is 60%. a. What is the expected steady state growth rate for Beta plc? (2 marks) b. What is the value of equity of the company? (3 marks) SWC plc is a grocery chain. Its reported debt to capital ratio is 20%, and return on capital is 8%, on a book value of invested capital of 500 million. If the operating lease expense in the current year is 40 million, the present value of lease commitments is 400 million, the tax rate is 20%, and the pre-tax cost of debt is 5%, estimate the company's adjusted debt to capital and return on capital (5 marks) 5. Rich Plc generated 100 million in net income and 80 million in Free cash flow to equity (FCFE) in the latest year. The company paid out 70m in dividends. The book value of equity is 800 million, it has debt of 200 million and cash of 50 million. If the tax rate is 20%, what is the a. Equity reinvestment rate? (2.5 marks) (2.5 marks) b. Expected growth in net income