What must be the beta of a portfolio with e(rp) = 13.75%, if rf = 6% and e(rm) = 11%? (round your answer to 2 decimal places.) b
1 answer:
Answer:
beta of portfolio is 1.55
Explanation:
First we calculate the Equity Risk Premium, given as:
Equity Risk Premium = Market Return - Risk Free Rate
= 11 - 6 = 5%
Given that;
Risk Free Rate = 6%
Return on Stock = 13.75%
Second, we calculate the Return on Stock
Return on stock = Risk-free rate + Equity risk premium * Beta for stock
You might be interested in
Answer:
b. $156.59
Explanation:
Note: The full question is attached as picture below
As the company is under traditional costing system and the allocation base is machine hours.
Variable OH per hour = Total variable cost / Total machine hours
Variable OH per hour = 513,600/32,000
Variable OH per hour = $16.05
Average cost of producing one unit of widget = Direct material per hour + Direct labor per hour + Variable OH per hour
= $95.52 + $51.04 + ($16.05*750/1200)
= $95.52 + $51.04 + $10.03
= $156.59
Answer: A
Explanation: Using a financial calculator to solve the problem :
For project A with a discount rate of 11.7%
Outlay = 80,000
CF for year 1 = 34000
CF for year 2 = 34000
CF for year 3 = 34000
I = 11.7 %
NPV = 2085
For project A with a discount rate of 13.5%
Outlay = 80,000
CF for year 1 = 34000
CF for year 2 = 34000
CF for year 3 = 34000
I = 13.5%
NPV = -397.5
For project B with a discount rate of 11.7%
Outlay = 80,000
CF for year 1 = 0
CF for year 2 = 0
CF for year 3 = 114,000
NPV = 1798
For project B with a discount rate of 13.5%
Outlay = 80,000
CF for year 1 = 0
CF for year 2 = 0
CF for year 3 = 114,000
NPV = -2,032
from the above calculations, project A has a better NPV when discount rate is 11.7% and 13.5%
