this a 5 part question

1 Question 1 (4 Marks) 2 Richard must decide how to allocate the capital in his portfolio. 3. Richard has $80,000 available to invest. He finds the rates of return for four stocks for the past 12 years and the results are given 5 below. Richard plans to invest 25% of his funds in each stock. 6 4 Enter Answer 7 a) How much will he invest in each stock? (1 Mark) 8 9 b) The expected return of Richard's porfolio is: Enter Answer % 10 (2 Marks X Round your answer to one one-hundreth of a percent) Enter Answer % 11 c) The standard deviation of Richard's portfolio return is: 12 (1 MarkX Round your answer to one one-hundredth of a percent) 13 T 14 Year Stock A (%) Stock B (%) Stock C(%) Stock D (%) Enter your Final Answer Here 15 1 -9.090 -15.300 1.580 -14.820 16 2 12.294 20.340 -1.984 20.820 17 3 14.994 24.840 -2.434 25.320 18 4 7.794 12.840 -1.234 13.320 19 5 -18.090 -30.300 3.080 -29.820 20 6 19.110 31.700 -3.120 32.180 21 7 11.310 18.700 -1.820 19.180 22 8 15.942 26.420 2.592 26.900 23 9 13.230 21.900 -2.140 22.380 24 10 13.494 22.340 -2.184 22.820 25 11 5.706 -9.680 1.016 -9.180 26 12 -8.490 - 14.300 1.480 13.820 27 Complete your rough work in the space below 80 CON ON OWN Now Question 2 (3 Marks) Anna is a Vice President at the J Corporation. The company is considering a investing in a new factory and Anna must decide whether it is a feasible project. In order to assess the viability of the project, Anna must first calculate the rate of return that equity holders expect from the company stock. The annual returns for J Corp. and for a market index are given below. Currently, the risk-free rate of return is 1.4% and the market risk-premium is 3.0%. Enter Answer Enter Answer Enter your Final Answer Here a) What is the beta of J Corp.'s stock? Mark)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 coming year? (2 Marks Round your answer to one one-hundreth of a percent) J Corp. Market Return Return Year (%) (%) 1 -5.94 -7.80 2 8.32 10.02 3 10.12 12.27 4 5.32 6.27 5 -11.94 -15.30 6 12.86 15.70 7 7.66 9.20 8 10.75 13.06 8.94 10.80 10 9.12 11.02 11 -3.68 -4.98 12 -5.54 -7.30 Complete your rough work in the space below + 9 4 6 1 Question 3 (3 Marks) 2 Refer to Question 2. Now that Anna has determined an appropriate rate 3 of return for J Corp.'s stock, she must calculate the firm's Weighted Average Cost of Capital (WACC). There are currently 56.0 Million 5 J Corp. common shares outstanding. Each share is currently priced at $17.88 . As well, the firm has 2,000 bonds outstanding and each bond has a face value of $10,000, a yield to maturity of 3.02% and a 8 quoted price of $10,302.70 . J Corp.'s tax rate is 30%. J Corp. has no preferred shares outstanding. 11 What is J Corp.'s WACC? Enter Answer 12 (Round your answer to one one-hundredth of a percent) Enter your Final Answer Here 14 Complete your rough work in the space below 7 9 10 13 15 1 2 3 Question 4 % Marks) Refer to Questions 2 and 3. The land for the factory will cost $1,080,000 The factory will cost $1,070,000 to build and construction will take two + years with construction costs payable in equal installments at the start of each s year. The factory will operate for 20 years. At the end of its 20 year lifespan. 6 the land can be resold for $700,000 There is a 70% probability that the factory's net operating cash flows will be $ $254,556 however, there is a 30% chance that net cash flows will only be 10 $85,469 . You may assume that net operating cash flows are received at the 1: end of each year. 7 8 12 Enter Answer Enter Answer 16 13 a) What are the Expected net operating cash flows per year? 14 (1 Mark Round your answer to 2 decimal places) 15 b) What is the Internal Rate of Return for the project? (Mark(Round your answer to one one-hundroth of a percent) 1 c) What is the Net Present Value of the project? ja (Mark Round your answer to 2 decimal places) 20 d) Should Anna recommend that the J Corporation build the factory? (2 Marks) Enter Answer 19 23 Yes No Check 22 22 24 Complete your rough work in the space below 25 26 Enter your Final Answer Hero 1 Question 5 (5 Marks) Refer to Questions 1 and 2. Richard has just received an unexpected 3 bonus at work worth $20,000 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 Answer 11 (round to two decimal points) 12 13 b) Richard's portfolio is... (2 Mark) Aggressive 14 Defensive Check 15 Neither 16 1 Enter your Final Answer Here } 17 1 Question 1 (4 Marks) 2 Richard must decide how to allocate the capital in his portfolio. 3. Richard has $80,000 available to invest. He finds the rates of return for four stocks for the past 12 years and the results are given 5 below. Richard plans to invest 25% of his funds in each stock. 6 4 Enter Answer 7 a) How much will he invest in each stock? (1 Mark) 8 9 b) The expected return of Richard's porfolio is: Enter Answer % 10 (2 Marks X Round your answer to one one-hundreth of a percent) Enter Answer % 11 c) The standard deviation of Richard's portfolio return is: 12 (1 MarkX Round your answer to one one-hundredth of a percent) 13 T 14 Year Stock A (%) Stock B (%) Stock C(%) Stock D (%) Enter your Final Answer Here 15 1 -9.090 -15.300 1.580 -14.820 16 2 12.294 20.340 -1.984 20.820 17 3 14.994 24.840 -2.434 25.320 18 4 7.794 12.840 -1.234 13.320 19 5 -18.090 -30.300 3.080 -29.820 20 6 19.110 31.700 -3.120 32.180 21 7 11.310 18.700 -1.820 19.180 22 8 15.942 26.420 2.592 26.900 23 9 13.230 21.900 -2.140 22.380 24 10 13.494 22.340 -2.184 22.820 25 11 5.706 -9.680 1.016 -9.180 26 12 -8.490 - 14.300 1.480 13.820 27 Complete your rough work in the space below 80 CON ON OWN Now Question 2 (3 Marks) Anna is a Vice President at the J Corporation. The company is considering a investing in a new factory and Anna must decide whether it is a feasible project. In order to assess the viability of the project, Anna must first calculate the rate of return that equity holders expect from the company stock. The annual returns for J Corp. and for a market index are given below. Currently, the risk-free rate of return is 1.4% and the market risk-premium is 3.0%. Enter Answer Enter Answer Enter your Final Answer Here a) What is the beta of J Corp.'s stock? Mark)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 coming year? (2 Marks Round your answer to one one-hundreth of a percent) J Corp. Market Return Return Year (%) (%) 1 -5.94 -7.80 2 8.32 10.02 3 10.12 12.27 4 5.32 6.27 5 -11.94 -15.30 6 12.86 15.70 7 7.66 9.20 8 10.75 13.06 8.94 10.80 10 9.12 11.02 11 -3.68 -4.98 12 -5.54 -7.30 Complete your rough work in the space below + 9 4 6 1 Question 3 (3 Marks) 2 Refer to Question 2. Now that Anna has determined an appropriate rate 3 of return for J Corp.'s stock, she must calculate the firm's Weighted Average Cost of Capital (WACC). There are currently 56.0 Million 5 J Corp. common shares outstanding. Each share is currently priced at $17.88 . As well, the firm has 2,000 bonds outstanding and each bond has a face value of $10,000, a yield to maturity of 3.02% and a 8 quoted price of $10,302.70 . J Corp.'s tax rate is 30%. J Corp. has no preferred shares outstanding. 11 What is J Corp.'s WACC? Enter Answer 12 (Round your answer to one one-hundredth of a percent) Enter your Final Answer Here 14 Complete your rough work in the space below 7 9 10 13 15 1 2 3 Question 4 % Marks) Refer to Questions 2 and 3. The land for the factory will cost $1,080,000 The factory will cost $1,070,000 to build and construction will take two + years with construction costs payable in equal installments at the start of each s year. The factory will operate for 20 years. At the end of its 20 year lifespan. 6 the land can be resold for $700,000 There is a 70% probability that the factory's net operating cash flows will be $ $254,556 however, there is a 30% chance that net cash flows will only be 10 $85,469 . You may assume that net operating cash flows are received at the 1: end of each year. 7 8 12 Enter Answer Enter Answer 16 13 a) What are the Expected net operating cash flows per year? 14 (1 Mark Round your answer to 2 decimal places) 15 b) What is the Internal Rate of Return for the project? (Mark(Round your answer to one one-hundroth of a percent) 1 c) What is the Net Present Value of the project? ja (Mark Round your answer to 2 decimal places) 20 d) Should Anna recommend that the J Corporation build the factory? (2 Marks) Enter Answer 19 23 Yes No Check 22 22 24 Complete your rough work in the space below 25 26 Enter your Final Answer Hero 1 Question 5 (5 Marks) Refer to Questions 1 and 2. Richard has just received an unexpected 3 bonus at work worth $20,000 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 Answer 11 (round to two decimal points) 12 13 b) Richard's portfolio is... (2 Mark) Aggressive 14 Defensive Check 15 Neither 16 1 Enter your Final Answer Here } 17