Answer
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Explanation
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Answer: Please refer to Explanation.
Explanation:
Your question was incomplete so I attached the missing details.
The Carrying Amount of the Division has to be ascertained to move forward as it is needed in calculating the loss on Impairment. It is calculated by subtracting Goodwill from the Net Assets.
= 496 - 214
= $282 million
Calculating the Loss on impairment is done by the following formula,
= Market Price - Carrying Amount of the Division (net of Goodwill) - carrying value of Goodwill
= 335 - 282 - 214
= -$161 million.
Journal Entry
DR Loss on Impairment $161 million
CR Goodwill $161 million
(To record the loss on Impairment)
Answer:
Explanation:
1.
According to the CAPM model
Fair return = Risk-free rate of return + (Beta × Market Premium)
For $1 discount store:
Expected return = 4% +(1.5 × 6%)
Expected return = 0.04 + (1.5 × 0.06)
Expected return = 0.04 + 0.09
Expected return = 0.13
Expected return = 13%
For everything $5
Expected Return = 4% + (1 × 6%)
Expected return = 0.04 + (1 × 0.06)
Expected return = 0.04 + 0.06
Expected return = 0.10
Expected return = 10%
2.
From the above calculation;
For $1 discount store:
Since the expected return is greater than the forecasted return at 12%.
Thus, it is overpriced.
For everything $5
Here, it is obvious from the above calculation that the expected return is lesser than the forecasted return at 11%.
Therefore, it is underpriced.
3) Beta can be defined as the security change that takes place due to market functuations. Thus, Beta manages the systematic risk associated with firms. From the information given, Kaskin Inc. has a more systematic risk(beta) than Quinn Inc. Thus, option A is the most accurate.
4)
To first find the growth rate by using CAPM model.
Required return = Risk free return + (market return - risk free return)
Required return = 0.08 + 1(0.18 - 0.08)
Required return = 18%
Using the formula:
Required return = (next year dividend/current price) + growth rate
18% = (9/100) + g
0.18 = 0.09 g
g = 0.09
Growth rate g = 9%
To determine the price at year 1; we have:
=
= $109.00
Therefore, the investor can earn a profit of $9 after selling the stock for $109 at the end of the year 1.
5.
According to beta
For portfolio A.
Risk premium per unit = (21 - 8)%/1.3
Risk premium per unit = (0.21 - 0.08)/1.3
Risk premium per unit = 0.1
Risk premium per unit = 10%
For portfolio B.
Risk premium per unit = (17 - 8)%/0.7
Risk premium per unit = (0.17 - 0.08)/0.7
Risk premium per unit = 0.1286
Risk premium per unit = 12.86%
From above, it is clear that the risk associated with portfolio B is lesser compared to portfolio A.
Thus; the correct option is b. A; B