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kondor19780726 [428]
3 years ago
8

You invest $100 in a risky asset with an expected rate of return of 0.21 and a standard deviation of 0.21 and a T-bill with a ra

te of return of 0.045. What percentages of your money must be invested in the risk-free asset to form a portfolio with an expected return of 0.28?
Business
1 answer:
WARRIOR [948]3 years ago
5 0

Answer:

-0.4242

Explanation:

Ra = 0.21 or 21%

Rf = 0.045 or 4.5%

Rp = 0.28 or 28%

Expected return on a portfolio is weighted average return of its assets :

Rp = Rf*(1-w) + Ra*w

28 = 4.5*(1-w) + 21*w

28 = 4.5 - 4.5w + 21w

28 - 4.5 = 21w - 4.5w

21w - 4.5w = 28 - 4.5

16.5w = 23.5

w = 23.5/16.5

w = 1.4242

Hence, weight of risky asset = 1.4242

So, Weight of risk free asset = 1 - 1.4242

Weight of risk free asset = -0.4242

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Emerald corporation's current ratio is 0.5, while ruby (emerald's competitor) company's current ratio is 1.5. Both firms want to
ruslelena [56]

Answer:

b. Only Emerald Corporation's current ratio will be increased.

Explanation:

Given that

Emerald current ratio is

= 0.5 i.e. = 0.5 ÷ 1

now in case when the current liability is doubles , so the current assets is

= 0.5 + 1 = 1.5

And, the cuurrent liabilities is

= 1 + 1

= 2

so new ratio is

= 1.5 ÷ 2

= 0.75

Now  

Ruby current ratio is

= 1.5

i.e. = 1.5 ÷ 1

Now in case when the current liability is doubled,

the current assets is

= 1.5 + 1

= 2.5

And, current liabilities is

= 1 + 1

= 2

Now new ratio is

= 2.5 ÷ 2

= 1.25

Therefore the emerald current ratio is rised from 0.5 to 0.75

And, the Ruby's ratio has decline from 1.5 to 1.25

7 0
3 years ago
Grove Inc. is a publicly traded chemical company that reported the following financial statements for the most recent year. $1,0
Oksi-84 [34.3K]

Answer:

FCFF = $335.50

Explanation:

Formula of Free Cash Flow to the firm ( FCFF) :

FCFF= Net Income+ Interest(1- tax rate)+ Depreciation+ working capital changes- capital investment

Now let us note some critical points and assumptions which are necessary to solve the question.

As the question says that the company will maintain its existing after tax return on capital invested next year, hence that means that the net income for the next year remains the same, which is $140.

It is also that the company expects it's Operating Income(EBIT) to increase by 6% every year, hence it's operating income(EBIT) for the next year will be $250*(1.06)= $265

Tax rate remains the same, that is, (60/200*100)= 30%

As there is no details with respect to working capital changes and any capital investment made, hence it is assumed to zero changes and no additional investment.

It is assumed that the depreciation method being followed is straight line method, hence depreciation value next year would be the same, that is, 150

Now let's finalise our income statement:

EBIT = $265 given in the question

Interest = ( $65) backward calculation

Taxable Income = $200

Taxes (30%) = ($60)

Net income = $140 given in question.

Hence our FCFF will be :

$ 140 + $65*(1-0.30) + $150 = $335.50

8 0
3 years ago
The December 31, 2016 balance sheet of Jensen Company showed Equipment of $76,000 and Accumulated Depreciation of $18,000. On Ja
Blababa [14]

Answer:

A. $54,000

B. $9,000

Explanation:

A. Computation for the depreciable cost of the equipment

Book value, 1/1/17 $58,000

($76,000 – $18,000)

Less salvage value $4,000

Depreciable cost $54,000

($58,000-$4,000)

Therefore the depreciable cost of the equipment is $54,000

B. Computation for the revised annual depreciation

Revised annual depreciation = $54,000÷6 years

Revised annual depreciation = $9,000

Therefore the revised annual depreciation is $9,000

6 0
2 years ago
Hettenhouse Company's perpetual preferred stock sells for $102.50 per share, and it pays a $9.50 annual dividend. If the company
solniwko [45]

Answer:

The company's cost of preferred stock for use in calculating the WACC is 9.65%

Explanation:

For computing the cost of preferred stock, the following formula should be used which is shown below

= Annual dividend based on preferred stock ÷ (Price per share × Flotation cost)

where,

Flotation cost = 1- rate

                      = 1- 4% = 0.96

= $9.50 ÷ ($102.50 × 0.96)

= $9.50 ÷ $98.4

= 9.65%

The flotation cost should be deducted because it is a one time expense. Thus, it would be minus from price per share.

Hence, the company's cost of preferred stock for use in calculating the WACC is 9.65%

5 0
3 years ago
The following information relates to the manufacturing operations of the Abbra Publishing Company for the year: Beginning Ending
yKpoI14uk [10]

Answer:

Purchases= $408,000

Explanation:

Giving the following information:

Beginning Ending Raw materials inventory$547,000 $610,000

The raw materials used in manufacturing during the year totaled $1,018,000

<u>To calculate the direct material purchased, we need to use the following formula:</u>

Purchases= direct material used in production - ending inventory

Purchases= 1,018,000 - 610,000

Purchases= $408,000

5 0
2 years ago
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