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3 years ago

Investment Management Inc. (IMI) uses the capital market line to make asset allocation recommendations. IMI derives the

Business

1 answer:

algol133 years ago

5 0

Answer:

The expected return that IMI can provide subject to Johnson's risk constraint is 8.5%

Explanation:

Capital Market Line (CML)

Expected return on the market portfolio, E( $r_m$ ) = 12 %

Standard deviation on the market portfolio, σ $_p$ = 20%

Risk-free rate, $r_f$ = 5%

E( $r_c$ ) = $r_f$ + [ E( $r_p$ ) - $r_f$ ] × ( σ $_c$ ÷ σ $_p$ )

= 0.05 + [ 0.12 - 0.05] × (0.10 ÷ 0.20)

= 8.5%

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3 years ago

Lardo Inc. plans to build a new manufacturing plant in either Country X or Country Y. It projects gross revenue in either locati

Tom [10]

Answer:

Following are the solution to the given points:

Explanation:

For point a:

After-tax profit for each country.

For Country X:

$Particulars \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ Amount(\$)\\\\Gross \ \ Revenue\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 4,000,000\\\\ Operating\ \ Expenses \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1,500,000\\\\ Pre-tax \ \ Profit \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 2,500,000 \\\\$

$Tax \ [ 2,500,000 \times 20\% \ ] \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 500,000\\\\ After-tax\ \ profit\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 2,000,000$

For Country Y:

$Particulars \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ Amount(\$)\\\\Gross \ \ Revenue\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 4,000,000 \\\\Operating\ \ Expenses \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1,800,000\\\\$

$Pre-tax\ \ Profit \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 2,200,000\\\\Tax\ [40,00,000 \times 10\%] \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 400,000 \\\\After-tax\ \ profit \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1,800,000$

For point b:

For Country X:

Lardo is expected to establish its new plant in Country X, because Country X's after tax income is higher than Country y's after-tax income [$1,800,000].

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3 years ago