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bezimeni [28]
3 years ago
6

The risk-free rate is 7% and the expected rate of return on the market portfolio is 11%. a. Calculate the required rate of retur

n on a security with a beta of 1.92. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) b. If the security is expected to return 15%, is it overpriced or underpriced?
Business
1 answer:
____ [38]3 years ago
3 0

Answer:

Required rate of return= 14.8

If the security is expected to return 15%, it is underpriced.

Explanation:

The required rate of return on the security can be calculated using the CAPM formula which states that

Required rate of return =rf + B(rm  - rf)

where rf= risk free rate

          B= beta of the security

          rm = return on the market

Required rate of return = 0.07 + 1.92(0.11-0.07) = 14.68%

If the security is expected to return 15%, it is underpriced, and is a good investment. Discounting the expected cash-flows from the security at this higher expected return of 15% is going to yield a lower price compared to what the investor is prepared to pay given his required rate of return of 14.68%.

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To support herself while attending school, Daun Deloch sold stereo systems to other students. During the first year of operation
vfiekz [6]

Answer:

Daun’s first year of operation

Income statement

Sales Revenues                       $250,000

Less  

Cost Of Sales                           $ 140,000

Less

Expenses                                   $ 2820

Warranty Claims                          5000

Net Income                                   102,180

 

Daun’s first year of operation

Cash Flows statement

Net Earnings                       $250,000

Less  

Cash Paid for

Inventory Costs                           $ 140,000

Replacements                                   $ 2820

Net Income                                   107,180

 

4 0
3 years ago
All of the fixed manufacturing overhead costs would continue whether Part B89 is made internally or purchased from an outside su
abruzzese [7]

Answer:

The correct option is a. Make the new product and buy the part to earn an extra $1.00 per unit contribution to profit.

Explanation:

Note: This question is not complete. The complete question is therefore provided before answering the question as follows:

Moon Appliance manufactures a variety of appliances which all use Part B89. Currently, Moon Appliance manufactures Part B89 itself. It has been producing 9,000 units of Part B89 annually. The annual costs of producing Part B89 at the level of 9,000 units include:

Direct materials = $3.00

Direct labor = $8.00

Variable manufacturing overhead = $4.00

Fixed manufacturing overhead = $3.00

Total cost = $18.00

All of the fixed manufacturing overhead costs would continue whether Part B89 is made internally or purchased from an outside supplier. Assume Moon Appliance can purchase 9,000 units of the part from the Nadal Parts Company for $20.00 each, and the facilities currently used to make the part could be used to manufacture 7,000 units of another product that would have a $6 per unit contribution margin. If no additional fixed costs would be incurred, what should Moon Appliance do?

Select one:

a. Make the new product and buy the part to earn an extra $1.00 per unit contribution to profit.

b. Make the new product and buy the part to earn an extra $4.00 per unit contribution to profit.

c. Continue to make the part to earn an extra $3.00 per unit contribution to profit.

d. Continue to make the part to earn an extra $8.00 per unit contribution to profit.

The explanation of the answer is now given as follows:

Since all of the fixed manufacturing overhead costs would continue whether Part B89 is made internally or purchased from an outside supplier, it implies that the fixed manufacturing overhead costs will not be considered in taking the decision.

We therefore proceed as follows:

Amount saved and generated per unit by outsourcing = Direct materials cost per unit + Direct labor cost per unit + Variable manufacturing overhead per unit + Per unit contribution margin from another product = $3 + $8 + $4 + $6 = $21

Price to buy from Supplier = $20

Extra per unit contribution to profit = Amount saved and generated per unit by outsourcing – Price to buy from Supplier = $21 - $20 = $1

Therefore, the correct option is a. Make the new product and buy the part to earn an extra $1.00 per unit contribution to profit.

3 0
3 years ago
An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 un
fgiga [73]

Answer:

B 30 percent

Explanation:

Initial cost of production = (2×$10) + (5×$4) + (8×$3) = $20+$20+$24 = $64

New cost of production = (2×$10) + (5×$8) + (8×$3) = $20+$40+$24 = $84

% rise in cost of production = (new cost - initial cost)/initial cost × 100 = (84 - 64)/64 ×100 = 20/64 × 100 = about 30%

6 0
3 years ago
At the time of his death on July 9, Aiden held rights in the following real estate: Fair Market Value (on July 9) Apartment buil
VladimirAG [237]

Answer:

The answer is \$1,200,000"".

Explanation:

\to [\$500,000 (\frac{1}{3} \times \$1,500,000) + \$250,000 (\frac{1}[3}  \times \$750,000 + \$450,000 (\frac{1}[2}  \times \$900,000]\\\\\\to \$1,200,000

Though this tree farm is jointly held, Aiden is assumed to have given 1/3 of the treatment because his mother gave her a gift to create the lease. The tenancy of the major chunk is subjected to the fifty percent spouse exclusion rule. None of the structures is included as Chloe does not escape Aiden.

6 0
2 years ago
A firm's bonds have a maturity of 10 years with a $1,000 face value, a 9 percent semiannual coupon, are callable in 5 years at $
Sladkaya [172]

Answer:

Yield to maturity is 3.94%

Explanation:

Yield to maturity is the annual rate of return that an investor receives if a bond bond is held until the maturity.

Face value = F = $1,000

Coupon payment = $1,000 x 9% = $90/2  = $45 semiannually

Selling price = P = $1080

Number of payment = n = 10 years x 2 = 20

Yield to maturity = [ C + ( F - P ) / n ] / [ (F + P ) / 2 ]

Yield to maturity = [ $45 + ( 1000 - 1080 ) / 20 ] / [ (1,000 + 1080 ) / 2 ]

Yield to maturity = [ $45 - 4 ] / 1040 = $41 /1040 = 0.394 = 3.94%

4 0
3 years ago
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