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frutty [35]
3 years ago
12

Thomas Partner purchased shares of Bad Wolf Industries on the open January 2 at $116.26 per share. He earned a dividend of $0.41

in March. Thomas kept his dividend in cash - he did not reinvest it. Bad Wolf Industries closed at January: $119.90 February: $123.58 March: $122.08 The total time-weighted rate of return for the calendar quarter is:__________
Business
1 answer:
Hunter-Best [27]3 years ago
3 0

Answer:

time weighted rate of return: 5.36%

Explanation:

We have to calculate the holding rate of return for each month and then mutiply them together:

<u>January:</u>

(119.90 - 116.26)/116.26 = 0.031309135

<u>February:</u>

(123.58-119.9)/119.9 = 0.030692244

<u>March:</u>

(0.41 + 122.08-123.58)/123.58 =  - 0.0088194

(1 + Jan) (1 + Feb) (1 + March) = 1.053587547

now we subtract one to get the wanted rate:

time weighted rate of return: 5.36%

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The total market value of the equity of ITM is $6 million, and the total value of its debt is $4
timofeeve [1]

Answer:

a. The required rate of return on Okefenokee stock is 16%.

b. WACC = 10.56%.

c. Estimate the discount rate for an expansion of the company's present business.

It should be the same as the WACC = 10.56%

d. The required rate of return on Okefenokee's new venture is Ke = 18 %.

Explanation:

Here the given is,

E = $6 million, D = $4 million, Beta = 1.2,

Rmp = the expected risk premium on the market =10%.

Rf = The Treasury bill rate = 4%

a. The required rate of return on Okefenokee stock,

Ke = Rf + Beta \times Rmp = 4 + 1.2 \times 10 = 16%%.

b. Tax rate, T = 40%

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Proportion of equity, We = 1 - Wd = 1 - 0.4 = 0.6

Cost of debt, Kd = Risk-free rate as debt is free of default = 4%

WACC = Wd \times Kd \times (1 - T) + We\times Ke\\\\ = 0.4 \times4\times (1 - 40) + 0.6 \times 16\\\\ = 10.56%

WACC = 10.56%.

c. Estimate the discount rate for an expansion of the company's present business.

It should be the same as the WACC = 10.56%

d. Suppose the company wants to diversify into the manufacture of rose-colored glasses. The beta of optical manufacturers with no debt outstanding is 1.4. What is the required rate of return on Okefenokee's new venture? (You should assume that the risky project will not enable the firm to issue an additional debt)

Ke = Rf + Beta \times Rmp\\\\Ke     = 4 + 1.4 \times 10 = 18%

Ke = 18 %.

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