BusinessFinanceQ&A LibraryA manager believes his firm will earn a return of 16.35 percent next year. His firm has a beta of 1.13, the expected return on the market is 13.90 percent, and the risk-free rate is 7.90 percent.Compute the return the firm should earn given its level of risk. (Round your answer to 2 decimal places.) Required Return: ___.__% Determine whether the manager is saying the firm is undervalued or overvalued. a.) undervalued b.) overvalued

Question

A manager believes his firm will earn a return of 16.35 percent next year. His firm has a beta of 1.13, the expected return on the market is 13.90 percent, and the risk-free rate is 7.90 percent.

Compute the return the firm should earn given its level of risk. **(Round your answer to 2 decimal places.)**

**Required Return: ___.__%**

Determine whether the manager is saying the firm is undervalued or overvalued.

a.) undervalued

b.) overvalued

1 Rating

Tagged in

Business

Finance

Find answers to questions asked by students like you.

Q: You invest in a portfolio of 5 stocks with an equal investment in each one. The betas of the 5 stock...

A: It is given that weights for each investment is equal, that is, weight for each stock will be (1/5)....

Q: Consider a project to supply Detroit with 40,000 tons of machine screws annually forautomobile produ...

A: a.The cost of equipment is $5,600,000. So, annual depreciation will be ($5,600,000 ÷ 6) = $933,333.3...

Q: The ___ the expected return from a financial asset, the ____ the risk of not getting the money back ...

A: Expected Return of Financial Asset:It is the expected profit or loss that is earned from the investm...

Q: Scenario Probability Stock fund Rate of Return Bond fund Rate of Return Severe recession 0.05 -30 ...

A: Hence the stock fund mean return is 10.35%.The mean return of stock fundt is calculated by multiplyi...

Q: 1. Today, a new release movie ticket costs $8.00. If the average annual inflation rate is 2.5%, who ...

A: Calculation of future value:Answer:Future value of ticket cost is $21.48Definition:Future value is t...

Q: The shareholders of Xyzrox have a preemptive right. Xyzorx has decided to sell 1,000,000 new shares ...

A: Preemptive rights refers to conditions in a security which gives an investor the rights to maintain ...

Q: Anthony and Susan are married filing jointly. Their combined income is currently $98,000. Both have ...

A: Increment of 8,500 will push the taxable income to the level of = Old income + increment = 98,000 + ...

Q: You are considering a loan vs a lease for a new piece of equipment. The price of the equipment is $3...

A: The maximum interest rate the lease can be for payments to be equal to the loan payment is 4%.

Q: The equity versus debt decision relies on a large number of factors such as the existing capital str...

A: As a rule, the superlative capital structure for a business is a capital structure which decreases t...

Q: You are a management trainee in one of the Manufacturing companies based in Johor, Malaysia. The com...

A: The company has the option of financing either through debt or equity. Cost of debt is usually lower...

Q: Which of the following are suppliers of loanable funds? households government units ...

A: First question:The suppliers of loanable finds include households, government units and foreign inve...

Q: Eastman Publishing Company is considering publishing a paperbadk textbook on spreadsheet application...

A: Calculate the breakeven point as follows:

Q: Discuss the topic of maximizing shareholder wealth. This topic has been researched and studied for m...

A: Shareholders wealth maximization can be described as the principle which only undertakes the actions...

Q: You lent $290 to a friend for one year at a nominal rate of interest of 3 percent. Inflation during ...

A: Real interest rate is the real return earned on the amount lent which can be calculated by using fis...

Q: Chrome Co. borrows $1,665,000 at an interest rate of 7.32% APR monthly with equal monthly payments o...

A: PV of loan = $ 1,665,000; Annuity payment, A = 15,265;Period = 1 monthinterest rate per period, r = ...

Q: Your company is currently considering two investment projects. Each project requires an upfront expe...

A: Payback period can be defined as the time length required by the project to recover the total cash o...

Q: XYZ company has the following expected cash flows for three scenarios that could occur: ...

A: In an levered firm, there is no debt amount therefore no interest amount is payable that is 0. The E...

Q: 6:04 IMG_0743.jpg X You are the CFO of Carla Vista, Inc., a retailer of the exercise machine Slimbod...

A: The initial investment cost of store is $33,500,000.According to straight line depreciation, the ann...

Q: A couple plans to save for their child's college education. What principal must be deposited by the ...

A: Present value can be defined as the amount which is to be set aside in order to have a pre-defined s...

Q: A stock has yielded returns of 6 percent, 11 percent, 14 percent, and -2 percent over the past four ...

A: The formula to calculate mean value is given below:

Q: Topic: Payout Policy What is the advantage(s) of dividends against retained earnings?

A: Dividend is the share which is given to the shareholders when from the company's profit. Dividend ca...

Q: Optimal corporation wants to expand their manufacturing facilities. They have two choices, first to ...

A: It is given that firm must incur $290,000 for two years, if it chooses option 1. The second option i...

Q: You choose to invest $2,985 income tax refund check (rather than spend it) in an account earning 5% ...

A: Formula:

Q: The next dividend payment by Grenier, Inc., will be $1.64 per share. The dividends are anticipated t...

A: Calculation of Dividend Yield and Capital Gains Yield:

Q: Consider an asset that costs $665,000 and is depreciated straight-line to zero over its nine-year ta...

A: Calculation of after cash flow from sale of asset:The after-cash flow from sale of asset is $170,296...

Q: Currently working on finance practice problems and need help with setting up the problem, calculatin...

A: Hey, since there are multiple questions posted, we will answer first question. Kindly, post the othe...

Q: Please show all equations and work as needed. Make the correct answer clear. If possible, please typ...

A: Calculation of WACC of firm after leverage (effective after-tax):Answer:WACC after leverage is 15.95...

Q: Hello, It is a three part question. However, I would like to know how the amount of 122, 265, was ca...

A: 3.Calculate the net present value as follows:

Q: need help with all

A: Risk free rate, Rf = 4%CAPM = E(R) = Rf + Beta x (Rm - Rf) where Rm is the expected return from mark...

Q: The common stock of Up-Towne Movers is selling for $33 a share and has a beta of 1.25. If the CAPM e...

A: Calculate the risk-free rate as follows:

Q: Paul and Sandy Moede signed an $8000 note at Citizen's Bank. Citizen's charges a 6.50% discount rate...

A: Computation of effective rate of interest:Hence, the effective rate of interest is 6.87%.

Q: Camber Corporation has to decide if they can finance purchasing 10 new machines for all their manufa...

A: a)Calculation of annual payments:Answer:The annual payment is $3,417,453.45.The actual cost of each ...

Q: You deposit $3000 in an account that pays 88% interest compounded semiannually. After 33 years, th...

A: Amount deposited, P = $ 3,000Future value of P deposited in an account offering annual interest rate...

Q: You would like to have $72,000 available in 15 years. There are two options. Account A has a rate of...

A: Let A and B be the amount to be deposited in Account A and Account B respectively to get the desired...

Q: Rank the following three stocks by their total risk level, highest to lowest. Night Ryder has an ave...

A: Calculation of the Total Risk Level of Night Ryder Stocks, WholeMart Stocks and Fruit Fly Stocks usi...

Q: 6:04 IMG_0741.jpg X Given the soaring price of gasoline, Ford is considering introducing a new produ...

A: To determine the incremental annual cash flow from operations, we need to first compute the contribu...

Q: A pension fund manager is considering three mutual funds. The first is a stock fund, the second is ...

A: Calculation of Expected Return, Standard Deviation, Sharpe Ratio, Weight of Stock and Weight of Bond...

Q: 6:05 IMG_0742.jpg X Wildhorse Company is considering buying a new farm that it plans to operate for ...

A: Net present value (NPV): Net present value is one of the most applicable capital budgeting techniqu...

Q: Why are credits and debits different for banks compared for personal finance usage?

A: In personal account, all expenses, assets, and losses will be debited. All incomes, liabilities, and...

Q: Consider a firm with an EBIT of $500,000. The firm finances its assets with $2,000,000 debt (costing...

A: Calculate the change in EPS as follows:

Q: Joey realizes that he has charged too much on his credit card and has racked up $4,300 in debt. If h...

A: Given that the loan amount is $4300, the payment per month is $125, annual percentage rate is 18%, a...

Q: Executives at XYZ Corporation realize that they have too much liquid assets. They want to use this c...

A: Expected return E(R) and standard deviation σ are given by the expressions on the white board. Pi is...

Q: Skolits Corp. issued 15-year bonds 2 years ago at a coupon rate of 7.6 percent. The bonds make semia...

A: Calculate the yield to maturity (YTM) as follows:MS - Excel --> Formulas --> Financials -->...

Q: What's the present value, when interest rates are 8.0 percent, of a $160 payment made every year for...

A: The present value is the today’s value related to the future money at a given rate of return. It is ...

Q: A family spends $46,000 a year in living expenses.If prices increase 3% a year for the next 3 years ...

A: The value of the asset that is expected to be in future due to specified growth rate is known as fut...

Q: Compute the expected return given these three economic states, their likelihoods, and the potential ...

A: Calculation of Expected Return:The expected return is 1.20%.Excel Spreadsheet:

Q: Consider the following three bond quotes: a Treasury bond quoted at 103:17, a corporate bond quoted ...

A: Bonds are usually quoted as a percentage of its par value. Thus, to find the price of the bond follo...

Q: Topic: Capital Budgeting and Valuation with Leverage Is it possible to calculate the unlevered value...

A: APV: It is abbreviated as Adjusted Present Value, is a study which is like the discounted cash flows...

Q: Annual and Average Returns for Stocks, Bonds, and T-Bills, 1950 to 2017 Stocks Long-Term T...

A: Portfolio return is the combined return on the investment portfolio which is expected by the investo...

Q: A bond has a yield to maturity of 7 percent. The bond matures in 10 years, has a face value of $1,00...

A: Coupon payments are the interest payments received by bondholders from the date a bond is issued til...