t. Suppose you are the money manager of a $250 million investment fund. The fund consists of four stocks with the following investments and betas: 10 Stock Investment Amount $m Beta 40 1.6 -0.05 80 1.3 D 120 0.75 If the market's required rate of return is 14% and the risk free rate is 6%, what is the fund's required rate of return? (5 marks) g. A stock has a required rate of return of 13%. If the risk free rate is 5% and the market risk premium is 6%: 0 What is the stock's beta? (1 mark) (i) If the market risk premium increased to 8%, what would happen to the stock's required rate of return and explain why this would occur? Assume that the risk free rate and the beta remain unchanged. (2 marks) h. What is the cost of preferred stock, fp, for Matrix Industries, if it can be issued at $50 per share, and it pays a constant annual dividend of $5.00 per share? (1 mark) i. Resene Dcor Inc has a target capital structure of 30% debt and 70% common equity, with no preferred stock. Resene Dcor's before tax cost of debt is 12% and its marginal tax rate is 30%. The current stock price is $25.50. The last dividend was Do = $1.80 and these dividends are expected to grow at a constant rate of 5%. (0) What is the cost of common equity? (1 mark) (ii) What is Resene Dcor's WACC? (2 marks) j. Andover Inc.'s balance sheet is below (thousands of dollars). Its cost of common equity is 14%, its before-tax cost of debt is 10% and its marginal tax rate is 30%. Assume that the firm's long term debt sells at par value. The firm has 800,000 shares of common stock outstanding that sell for $5.00 per share. Calculate Andover's WACC using market value weights. (5 marks) Assets ($000s) Liabilities and Equity ($000s) Cash 195 Accounts 295 receivable Inventories Long term debt 1,670 Plant & Equip, net 2,290 Common equity 3,165 Total Assets 3,165 Total liabilities & equity 1,495 385 Introduction to Finance Assignment_2_T1_2020