CFTP Individual Assignment
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25557 Corporate Finance:
Theory and Practice Individual Assignment Written Report XXX
1.
CAPM β Estimation: Complete this segment, download data from the Yahoo Finance website. Data should have the following specifications: Monthly frequency Start date: 1st Jan 2015 End date: 31st Dec 2022 (a)
(5 marks) Download data on the following tickers: GM (firm), SPY (market portfolio
proxy),
TNX (risk-free rate). Merge the data on date (hint: Use VLOOKUP function in Excel).
(b)
(5 marks) What is the estimated CAPM β. Report the regression output in the Excel
spreadsheet. Provide a screenshot of the regression output in the report.
- - - - - - - - - - -- - -- - -
(c)
(2 marks) Interpret the CAPM β.
𝛽
(beta) measures the volatility of returns on a security relative to the market. This is especially helpful when determining good from bad investments as it determines the amount of systematic risk inherent with the stock. From the excel analysis, it shows that GM (General Motors) has a CAPM 𝛽
of 1.3961 (4d.p). This indicates that for every 1% the market moves, the security would move the equivalent of 1.3961% resulting in higher returns or losses. This is supported by the regression analysis completed on the historical data of the market, R
f
rate and GM prices. Whether this amount of systematic risk is desirable is decided
individually by the investor. 2.
Capital Structure To complete this segment, refer to the following financial information of GM, as of 31st December 2022. o
There are 1.454 billion shares outstanding. o
Short-term and long-term debt amounts are $38,778 million and $75,921 millions, respectively. o
Last closing share price is $33.64. o
Depreciation & amortization expenses are $11,276 million. o
Earnings before interest and taxes are $10,314 million. o
Marginal tax rate is 21% and the effective tax rate is 14.75%. o
Government bond yield is 5%.
(a)
(5 marks) What is the WACC under the optimal capital structure suggested by the Excel
spreadsheet analysis? Your answer is the baseline WACC figure.
The WACC under the optimal capital structure is seen to be 8.21% within the excel when calculated. (b)
(5 marks) In your baseline scenario, the expected market risk premium (MRP) is 7% and
the government bond yield is 5%. However, you believe the MRP can be as 12% or as low
as
5%. You also believe that the government bond yield can range from 2% to 7%. Analyse how
sensitive the WACC is to your assumptions of the MRP (in increments of 0.5%) and the
government bond yield (in increments of 1%). Provide a screenshot of your sensitivity
analysis in the report.
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HISTORICAL RATES OF RETURN
Year
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1
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10.0
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X
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2012
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2013
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hapter 11 Lab Application
全 回
Sign ia
еBook
You have been depositing money into an account yearly based on the following investment amounts, rates and times, what is the value of that investment account at the end of that
period?
(Click here to see present value and future value tables)
Amounts of
Value at the End
Investment
Rate
Times
of the Period
$7,000
20%
16 years
612,094.91X
$11,000
15%
9 years
184,644.26X
$15,000
12%
5 years
95,292.71 X
$36,000
10%
2 years
75,600.00
Feedback
>
Check My Work
For each scenario, use the rate and time components to use the applicable time value of money table to determine the needed factor. Multiply the investment amount by the
future value factor to determine the value of end of the period.
6:38 PM
G O 4) ENG
13
68°F Sunny
10/26/2021
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b. Cost of preferred stock
C. Cost of equity
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Groups
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Support
BAU
BAUGO
BAU Library
IF3224 (2) Financial Mark...
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Resources
Status and follow-up
Participants
More -
QuestionT1
The following information for Stock A, Stock B and Stock C are given:
State of Economy
Probability of State
Stock A Return
Stock B Return
Boom
0.10
0.30
0.20
Good
0.40
0.20
0.10
Poor
0.50
-0.25
-0.06
Variance(Stock C)-0.08
Covariance(Stock A, Stock C)-0.020
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If you form a portfolio and invest 20% of your money into Stock A, 35% into Stock B and, 45% of it into Stock C, what will be the standard deviation of the portfolio? (Answer is
rounded)
Your answer:
1433
0.136
41°C
ENG
22/06/202
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For a given cash flow diagram, if the interest rate i=10% , and A=$700, the F value is closest to:
A
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52-Week Price
НІ
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130.93
50.29
35.00
Lo
10.43
33.42
69.50
14.00
20.74
Stock (DIV)
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SIR 2.00
DR Dime.85
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PE
Yld % Ratio
26
6
3.8
10
2.2
10
5.5
6
1.5 28
%
Close
Price
13.90
40.43
88.97
15.48
??
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Chg
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-.01
3.07
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