b-3. Find the corresponding predicted return of a firm that is not high-tech. (Round coefficient estimates to at least 4 decimal places and final answer to 2 decimal places.) Predicted initial return of a non high-tech firm
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- You are a financial analyst, and you are tasked with calculating the expected return and standard deviation of returns for Kershaw Enterprises. Toward that end you are given the following data: · In an expanding economy Kershaw is expected to earn 5.30% · In a booming economy Kershaw is expected to earn 9.50%; · In a contracting economy Kershaw is expected to earn 3.50% · In a recession Kershaw is expected to earn -1.20%; · The probabilities for expansion, boom, contraction and recession are 20%, 25%, 35% and 20% respectively.Given the following information, calculate the expected value for Firm C's EPS. Data for Firms A and B are as follows: E(EPSA) = $5.10, and σA = $3.63; E(EPSB) = $4.20, and σB = $2.94. Do not round intermediate calculations. Round your answer to the nearest cent. Probability 0.1 0.2 0.4 0.2 0.1 Firm A: EPSA ($1.61) $1.80 $5.10 $8.40 $11.81 Firm B: EPSB (1.20) 1.30 4.20 7.10 9.60 Firm C: EPSC (2.59) 1.35 5.10 8.85 12.79 E(EPSC): $ You are given that σc = $4.12. Discuss the relative riskiness of the three firms' earnings using their respective coefficients of variation. Do not round intermediate calculations. Round your answers to two decimal places. CV A B C The most risky firm is .The appropriate WACC of a firm is 6.77%. With market return of 8%, prevailing credit spread of 3%, tax rate of 30% and Equity ratio of 30%, what is the risk free rate of the firm with Beta of 1.5? a. 4% b. 5% c. 6% d. 7%
- Instructions: Assume the following data for two firms (U = unlevered firm) and (L = levered firm). Assume the two firms are in the same risk class when it comes to business risk. Both firms have EBIT = €1000 000. Firm U has zero debt and its required rate of return (KsU = 12%). Firm L has €2000 000 debt and pays 10% interest rate. Based on the data provided, answer the following questions and show all your computations and interpret your results. Find the value of unlevered (U) and levered (L) firms under zero corporate tax assumption. Find the market value of the firm’s L’s debt and equity. Do 1 and 2 under the assumption of corporate tax = 60%Through a simulation model, the management consultants of ZZZ Corporation estimates that the free cashflows of the to-be-acquired firms is 2,700,000. It’s forecasted operating income growth rate is 4%while its forecasted growth in net income is 5%. ZZZ requires a return on the firm at 22%. Based on those information, what is the value of the firm?Debra is considering investing in a company's stock and is aware that the return on that investment is particularly sensitive to how the economy is performing. Her analysis suggests that four states of the economy can affect the return on the investment.Use the following table of returns and probabilities to determine the coefficient of variation for the investment. (Round answer to 5 decimal places, e.g. 0.07680.) Probability Return Boom 0.2 25.00% Good 0.4 15.00% Level 0.3 10.00% Slump 0.1 -5.00%
- Firm B has a capital intensity ratio of 2,optimal debt equity ratio of 1.5, and dividend payout ratio of 0.5. What profit margin must the firm achieve in orderto grow at a rate of 15% without new equity issue?Investment advisors estimated the stock market returns for four market segments: computers, financial, manufacturing, and pharmaceuticals. Annual return projections vary depending on whether the general economic conditions are improving, stable, or declining. The anticipated annual return percentages for each market segment under each economic condition are as follows: Assume that an individual investor wants to select one market segment for a new investment. A forecast shows improving to declining economic conditions with the following probabilities: improving (0.2), stable (0.5), and declining (0.3). What is the preferred market segment for the investor, and what is the expected return percentage? At a later date, a revised forecast shows a potential for an improvement in economic conditions. New probabilities are as follows: improving (0.4), stable (0.4), and declining (0.2). What is the preferred market segment for the investor based on these new probabilities? What is the expected return percentage?The data in Exhibit 11.3 on industry median betas suggest that firms in the following three sets of related industries have different degrees of systematic risk. REQUIRED a. For each matched pair of industries, describe factors that characterize a typical firms business model in each industry. Describe how such factors would contribute to differences in systematic risk. b. For each matched pair of industries, use the CAPM to compute the required rate of return on equity capital for the median firm in each industry. Assume that the risk-free rate of return is 4.0% and the market risk premium is 5.0%. c. For each matched pair of industries, compute the present value of a stream of 1 dividends for the median firm in each industry. Use the perpetuity-with-growth model and assume 3.0% long-run growth for each industry. What effect does the difference in systematic risk across industries have on the per-dollar dividend valuation of the median firm in each industry?
- As the general manager of a firm, you are presented with an investment proposal from one of your divisions. Its net present value, if discounted at the cost of capital for your firm (which is 15 percent), is $ 1 00,000, and its internal rate of return is 20 percent. (a) What are the economic interpretations of the net present value and internal rate of return figures? In other words, what do they mean? (b) What, if any, additional information would you like to have before approving the project?Consider an economy with two types of companies, S and I. The profits of companies S always move together, but the profits of companies I move independently of each other. For both firms, there is a 70% probability that the firm's return is 30%, and a 30% probability that the return is -30%. The standard deviation of an individual company's return is closest to the value: Choose one: A.23.0% B.5.25% C.15.0% D.10.0% Only typed answerAssume you are given the following information for firms A and B: A B D $1,563,400.00 $2,357,316.00 E $2,051,347.00 $1,257,431.00 Price $31.25 $31.25 i 13.52% 13.52% EBIT $97,347.00 $97,347.00 No taxes How do you replicate an investment in 79% of stock B by using stock A? What is the return of the replicating strategy?
