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You have just run a regression of montly returns on MAD Inc. a newspaper and magazine publisher, against returns on the S and P 5
You have just run a regression of montly returns on MAD Inc. a newspaper and magazine publisher, against returns on the S and P and have arrived at the following result:
Rmadrandp
The regression has an R squared of The current T bill rate is and the current T bond rate is The risk free rate during the period of the regression was Answer the following questions relating to the regression:
a Bassed on the intercept, how well or badly did MAD do relative to expectations, during the period of the regression.
b You realize that MAD Inc. went through a major restructuring at the end of last month which was the last month of your regression and made the following changes:
The firm sold off its magazine division, which had an unlevered beta of for $ million.
It borrowed an additional $ million and bought back stock worth $ million.
After the sale of the division and the share repurchase, MAD Inc. had $ million in debt and $ million in equity outstanding.
If the firms tax rate is reestimate the beta, after these changes.
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