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Dima020 [189]
3 years ago
11

A stock has an expected return of 13.5 percent, its beta is 1.40, and the expected return on the market is 11.5 percent. What mu

st the risk-free rate be? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Business
1 answer:
uranmaximum [27]3 years ago
6 0

Answer:

The risk free rate is 6.50%

Explanation:

The required rate of return is the minimum return that investors demand/expect on a stock based on the systematic risk of the stock as given by the beta. The expected or required rate of return on a stock can be calculated using the CAPM equation.

The equation is,

r = rRF + Beta * (rM - rRF)

Where,

  • rRF is the risk free rate
  • rM is the return on market

As we know the figures for r, Beta and rM, we will input these figures in the equation to calculate risk free rate.

Let risk free rate be x.

0.135 = x + 1.4 * (0.115 - x)

0.135 = x + 0.161 - 1.4x

0.135 - 0.161  =  x - 1.4x

-0.026  =  -0.4x

-0.026 / -0.4 = x

x =  0.065 or 6.50%

r = 0.1475 or 14.75%

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

3 0
3 years ago
Can someone help pick 1, 2,or 3 ?
ollegr [7]

Answer:

2no I think you are confused so

8 0
2 years ago
A chain of parking garages recently offered customers the ability to pay for parking on their mobile phone instead of paying at
Fittoniya [83]

Answer:

Contact-less payment technology

Explanation:

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Contact-less payment mechanism reduces cost for staffing and also removes need for collection of cash. This means that parking facilities are managed remotely.  

7 0
3 years ago
Item X is a standard item stocked in a company's inventory of component parts. Each year the firm, on a random basis, uses about
alina1380 [7]

Answer:

Annual demand (D) = 1,600 units

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EOQ = √2Dco

                H

EOQ = √2 x 1,600 x $16

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EOQ = 80 units

Explanation:

EOQ is the square root of 2 multiplied by annual demand and ordering cost per order divided by holding cost per item per annum.

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Andrei [34K]

Answer:

No, they don´t.

Explanation:

Forecast is not required by GAAP, as the <u>Relevance</u> and the <u>Faithful</u> <u>Representation</u> are concepts that are not compatible with data projection.  Forecast implies estimates, and subjective interpretations that do not fulfill financial statements aim and are difficult to verify.

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