Using the data in the following table, Year Stock A Stock B 2004 - 1095 2005 20% 2006 596 796 2007 1096 -10% 2008 596 1046 20% 896 a) Estimate (a) the average return and volatility for each stock. b) Calculate the expected return and the volatility (standard deviation) of a portfolio that is 70% invested in stock A and 30% invested in stock 8, cor the correlation coefficient between the two stocks is 6.27%. c) What is your comments on the results in a and b. TT T Arial 3 (12pt) Wor Pathop ick Save and Submit to save and submit. Click Save All Answers to save all answers. hp QUESTION 17 XYZ Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars) Items Year 1 Year2 Revenues 125 160 Costs of Good sold and operating expenses and other 40 60 than depreciation Depreciation 25 36 Increase in net working capital 5 8 Capital expenditures 30 40 Marginal corporate tax rate 35% 35% What are the incremental earnings for this project for years 1 and 2? (2 marks) If the initial investment of the project is 10 thousand dollars and the cost of capital for this project is 15%, what is your estimate of the value of the new project using the DFCF approach? (1.5 marks) d. If XYZ has a debt of 5 thousand dollars and its number of shares outstanding is 2 thousand shares, what is the price of its stock? (15 marks) C TT T Arial 3 (12pt) T-SE Using the data in the following table, Year Stock A Stock B 2004 - 1095 2005 20% 2006 596 796 2007 1096 -10% 2008 596 1046 20% 896 a) Estimate (a) the average return and volatility for each stock. b) Calculate the expected return and the volatility (standard deviation) of a portfolio that is 70% invested in stock A and 30% invested in stock 8, cor the correlation coefficient between the two stocks is 6.27%. c) What is your comments on the results in a and b. TT T Arial 3 (12pt) Wor Pathop ick Save and Submit to save and submit. Click Save All Answers to save all answers. hp QUESTION 17 XYZ Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars) Items Year 1 Year2 Revenues 125 160 Costs of Good sold and operating expenses and other 40 60 than depreciation Depreciation 25 36 Increase in net working capital 5 8 Capital expenditures 30 40 Marginal corporate tax rate 35% 35% What are the incremental earnings for this project for years 1 and 2? (2 marks) If the initial investment of the project is 10 thousand dollars and the cost of capital for this project is 15%, what is your estimate of the value of the new project using the DFCF approach? (1.5 marks) d. If XYZ has a debt of 5 thousand dollars and its number of shares outstanding is 2 thousand shares, what is the price of its stock? (15 marks) C TT T Arial 3 (12pt) T-SE
