see attach file

Suppose that the S&P 500, with a beta of 1, has an expected return of 28% and T-bills provide a risk-free return of 7%.

a.	What would be the expected return and beta of portfolios constructed from these two assets with weights in the S&P 500 of (i) 0; (ii) 0.25; (iii) 0.5; (iv) 0.75; (v) 1?(Leave no cells blank - be certain to enter "0" wherever required. Round your answers to 2 decimal places.)

		Expected Return	Beta
(i)	0	%
(ii)	0.25	%
(iii)	0.5	%
(iv)	0.75	%
(v)	1	%

b.	On the basis of your answer to (a), what is the trade-off between risk and return, that is, how does expected return vary with beta?

Slope of the return

%

References eBook & Resources WorksheetDifficulty: IntermediateLearni

Final A firm has a long-term debt-equity ratio of 0.3. Shareholders' equity is $1.05 million. Current assets are $225,000, and the current ratio is 1.8. The only current liabilities are notes payable. What is the total debt ratio? (Round your answer to 2 decimal places.) Total debt ratio 1. Butterfly Tractors had $20.50 million in sales last year. Cost of goods sold was $9.30 million, depreciation expense was $3.30 million, interest payment on outstanding debt was $2.30 million, and the firm's tax rate was 30%. a. What was the firm's net income and net cash flow? (Enter your answers in millions rounded to 2 decimal places.) Net income $ million Net cash flow $ million b. What would happen to net income and cash flow if depreciation were increased by $2.30 million? (Input all amounts as positive values. Enter your answers in millions rounded to 2 decimal places.) Net income by $ by $ million Cash flow million d. What would be the impact on net income and cash flow if the firm's interest expense were $2.30 million higher. (Input all amounts as positive values. Enter your answers in millions rounded to 2 decimal places.) Net income by $ by $ million Cash flow million question 4 a. You plan to retire in 35 years and want to accumulate enough by then to provide yourself with $23,000 a year for 10 years. If the interest rate is 8%, how much must you accumulate by the time you retire? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Present value $ b. How much must you save each year until retirement in order to finance your retirement consumption? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Save each year $ c. Now you remember that the annual inflation rate is 3.3%. If a loaf of bread costs $1 today, what will it cost by the time you retire? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Annual inflation rate $ d. You really want to consume $23,000 a year in real dollars during retirement and wish to save an equal real amount each year until then. What is the real amount of savings that you need to accumulate by the time you retire? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Present value $ e. Calculate the required preretirement real annual savings necessary to meet your consumption goals. Compare with your answer to (b). (Do not round intermediate calculations. Round your answer to 2 decimal places.) Payment $ f. What is the nominal value of the amount you need to save during the first year? (Assume the savings are put aside at the end of each year.) The Thirtyfifth year? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Nominal value $ Thirty fifth year $ A 20-year maturity bond with face value of $1,000 makes annual coupon payments and has a coupon rate of 6%. a.What is the bond's yield to maturity if the bond is selling for $910? (Do not round intermediate calculations. Round your answer to 3 decimal places.) % Yield to maturity b. What is the bond's yield to maturity if the bond is selling for $1,000? % Yield to maturity c. What is the bond's yield to maturity if the bond is selling for $1,110? (Do not round intermediate calculations. Round your answer to 3 decimal places.) % Yield to maturity References eBook & Resources Web Cites Research projects a rate of return of 20% on new projects. Management plans to plow back 30% of all earnings into the firm. Earnings this year will be $4 per share, and investors expect a 10% rate of return on stocks facing the same risks as Web Cites. a. What is the sustainable growth rate? (Round your answer to 2 decimal places.) % Sustainable growth rate b. What is the stock price? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Stock price $ c. What is the present value of growth opportunities (PVGO)? (Round your answer to 2 decimal places.) PVGO $ d. What is the P/E ratio? (Do not round intermediate calculations. Round your answer to 2 decimal places.) P/E ratio e. What would the price and P/E ratio be if the firm paid out all earnings as dividends? (Round your answer to 2 decimal places.) Price $ P/E ratio Hints References eBook & Resources Econo-Cool air conditioners cost $700 to purchase, result in electricity bills of $350 per year, and last for 4 years. Luxury Air models cost $900, result in electricity bills of $160 per year, and last for 7 years. The discount rate is 21%. a. What are the equivalent annual costs of the Econo-Cool and Luxury Air models? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Econo-cool costs $700 and lasts for 4 years. The annual rental fee with the same PV is The equivalent annual cost of owning and running Econo-cool is Luxury Air costs $900, and lasts for 7 years. Its equivalent annual rental fee is found as The equivalent annual cost of owning and running Luxury Air is $ $ $ $ b. Which model is more cost-effective? Luxury Air Econo-cool c-1.Now you remember that the inflation rate is expected to be 10% per year for the foreseeable future. What are the equivalent annual costs of the Econo-Cool and Luxury Air models? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Equivalent annual real cost to own Econo-cool Plus $350 (real operating cost) $ 350.00 $ Equivalent annual real cost to own Luxury Air Plus $160 (real operating cost) $ 160.00 $ c-2.Which model is more cost-effective? Luxury Air Econo-cooL The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $30. The unit cost of the giftware is $20. Year Unit Sales 1 27,000 2 35,000 3 19,000 4 10,000 Thereafter 0 It is expected that net working capital will amount to 20% of sales in the following year. For example, the store will need an initial (year-0) investment in working capital of .20 27,000 $30 = $162,000. Plant and equipment necessary to establish the Giftware business will require an additional investment of $205,000. This investment will be depreciated using MACRS and a 3-year life. After 4 years, the equipment will have an economic and book value of zero. The firm's tax rate is 30%. What is the net present value of the project? The discount rate is 16%. (Do not round intermediate calculations. Round your answer to the nearest dollar amount.) Net present value $ Question 8 Hit or Miss Sports is introducing a new product this year. If its see-atnight soccer balls are a hit, the firm expects to be able to sell 60,000 units a year at a price of $50 each. If the new product is a bust, only 40,000 units can be sold at a price of $45. The variable cost of each ball is $20, and fixed costs are zero. The cost of the manufacturing equipment is $8.0 million, and the project life is estimated at 10 years. The firm will use straight-line depreciation over the 10-year life of the project. The firm's tax rate is 40%, and the discount rate is 9%. a- If each outcome is equally likely, what is expected 1. NPV? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in dollars not in millions. Round your answer to the nearest dollar amount.) Expected NPV $ aWill the firm accept the project? 2. Yes No b- Suppose now that the firm can abandon the project and sell off the 1. manufacturing equipment for $7.20 million if demand for the balls turns out to be weak. The firm will make the decision to continue or abandon after the first year of sales. What is expected NPV? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in dollars not in millions. Round your answer to the nearest dollar amount.) Expected NPV $ b- Does the option to abandon change the firm's decision to accept 2. the project? Yes No Question 9 Scenario Recession Rate of Return Probability Stocks Bonds .20 7% +20% Normal economy Boom .60 +22 +11 .20 +33 +7 Consider a portfolio with weights of .7 in stocks and .3 in bonds. a.What is the rate of return on the portfolio in each scenario? (Do not round intermediate calculations. Round your answers to 1 decimal place.) Scenario Recession Normal economy Boom Rate of Return % % % b.What are the expected rate of return and standard deviation of the portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected rate of return Standard deviation % % c.Which investment would you prefer? 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(Leave no cells blank - be certain to enter "0" wherever required. Round your answers to 2 decimal places.) Expected Return % (i) 0 % (ii) 0.25 % (iii) 0.5 (iv ) Beta % 0.75 % (v) 1 b. On the basis of your answer to (a), what is the trade-off between risk and return, that is, how does expected return vary with beta? Slope of the return % Question You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for the project are as follows: Years 0 1-10 Cash Flow 300 +80 a. On the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.7. Assuming that the rate of return available on risk-free investments is 5% and that the expected rate of return on the market portfolio is 12%, what is the net present value of the project? (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places.) $ NPV b. Should the project be accepted? 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(Negative values should be indicated by a minus sign.) Expected Return % Boom % Normal economy % Recession b. Calculate the standard deviation of Escapist. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Standard deviation % Consider the following scenario analysis: Scenario Recession Normal economy Boom Rate of Return Probability Stocks Bonds .20 9% +21% .70 +22 +9 .10 +25 +5 a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms? Yes No b. Calculate the expected rate of return and standard deviation for each investment. (Do not round intermediate calculations. Round your answers to 1 decimal place.) Stocks Expected Rate of Return % Standard Deviation % % Bonds % c. Which investment would you prefer? Stocks Bonds Scenario Recession Normal economy Boom Probability Stocks .30 4% .50 +17 .20 +28 Rate of Return Bonds +16% +10 +9 Consider a portfolio with weights of .7 in stocks and .3 in bonds. a. What is the rate of return on the portfolio in each scenario? (Do not round intermediate calculations. Round your answers to 1 decimal place.) Scenario Recession Normal economy Boom Rate of Return % % % b. What are the expected rate of return and standard deviation of the portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected rate of return Standard deviation c. Which investment would you prefer? % % Portfolio Bonds Stocks