FUND. OF CORPORATE FINANCE >MSU<
11th Edition
ISBN: 9781259900693
Author: Ross
Publisher: MCG CUSTOM
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Textbook Question
Chapter 11, Problem 8QP
Calculating Break-Even [LO3] In each of the following cases, find the unknown variable:
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omplete the table below using CAPM model
Case
Expected return
RF
RM
Beta
B
9%
8%
10%
?
Example of CAPM Equation:
Case
Risk free Rate (Rf)
Market return (Km)
Beta (b)
Required Return
A
5%
8%
1.30
?
B
8%
13%
0.90
?
C
10%
15%
-0.20%
?
D
?
12%
1.0
12%
E
6%
?
0.60
9%
F
5%
16%
?
10%
Required: Using CAPM equation, compute the missing value (?)
4
When using the Black Scholes method, does volatility affect the price of puts and calls in the same or opposite direction?
Chapter 11 Solutions
FUND. OF CORPORATE FINANCE >MSU<
Ch. 11.1 - Prob. 11.1ACQCh. 11.1 - What are some potential sources of value in a new...Ch. 11.2 - Prob. 11.2ACQCh. 11.2 - What are the drawbacks to the various types of...Ch. 11.3 - How are fixed costs similar to sunk costs?Ch. 11.3 - What is net income at the accounting break-even...Ch. 11.3 - Why might a financial manager be interested in the...Ch. 11.4 - If a project breaks even on an accounting basis,...Ch. 11.4 - If a project breaks even on a cash basis, what is...Ch. 11.4 - Prob. 11.4CCQ
Ch. 11.5 - What is operating leverage?Ch. 11.5 - How is operating leverage measured?Ch. 11.5 - Prob. 11.5CCQCh. 11.6 - What is capital rationing? What types are there?Ch. 11.6 - Prob. 11.6BCQCh. 11 - Prob. 11.1CTFCh. 11 - Marcos Entertainment expects to sell 84,000...Ch. 11 - Delta Tool has projected sales of 8,500 units at a...Ch. 11 - What is true for a project if that project is...Ch. 11 - A capital-intensive project is one that has a...Ch. 11 - Pavloki, Inc., has three proposed projects with...Ch. 11 - Forecasting Risk [LO1] What is forecasting risk?...Ch. 11 - Sensitivity Analysis and Scenario Analysis [LO1,...Ch. 11 - Prob. 3CRCTCh. 11 - Operating Leverage [LO4] At one time at least,...Ch. 11 - Operating Leverage [LO4] Airlines offer an example...Ch. 11 - Prob. 6CRCTCh. 11 - Prob. 7CRCTCh. 11 - Prob. 8CRCTCh. 11 - Prob. 9CRCTCh. 11 - Scenario Analysis [LO2] You are at work when a...Ch. 11 - Calculating Costs and Break-Even [LO3] Night...Ch. 11 - Prob. 2QPCh. 11 - Scenario Analysis [LO2] Sloan Transmissions, Inc.,...Ch. 11 - Sensitivity Analysis [LO1] For the company in the...Ch. 11 - Sensitivity Analysis and Break-Even [LO1, 3] We...Ch. 11 - Prob. 6QPCh. 11 - Prob. 7QPCh. 11 - Calculating Break-Even [LO3] In each of the...Ch. 11 - Calculating Break-Even [LO3] A project has the...Ch. 11 - Using Break-Even Analysis [LO3] Consider a project...Ch. 11 - Calculating Operating Leverage [LO4] At an output...Ch. 11 - Leverage [LO4] In the previous problem, suppose...Ch. 11 - Operating Cash Flow and Leverage [LO4] A proposed...Ch. 11 - Cash Flow and Leverage [LO4] At an output level of...Ch. 11 - Prob. 15QPCh. 11 - Prob. 16QPCh. 11 - Sensitivity Analysis [LO1] Consider a four-year...Ch. 11 - Operating Leverage [LO4] In the previous problem,...Ch. 11 - Project Analysis [LO1, 2, 3, 4] You are...Ch. 11 - Project Analysis [LO1, 2] McGilla Golf has decided...Ch. 11 - Prob. 21QPCh. 11 - Sensitivity Analysis [LO1] McGilla Golf would like...Ch. 11 - Break-Even Analysis [LO3] Hybrid cars are touted...Ch. 11 - Break-Even Analysis [LO3] In an effort to capture...Ch. 11 - Prob. 25QPCh. 11 - Operating Leverage and Taxes [LO4] Show that if we...Ch. 11 - Scenario Analysis [LO2] Consider a project to...Ch. 11 - Sensitivity Analysis [LO1] In Problem 27, suppose...Ch. 11 - Prob. 29QPCh. 11 - Prob. 30QP
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- If the simple CAPM is valid, which of the following situations are possible? Explain. Consider each situation independently. Expected Return Beta A 20% 1.4 B 25% 1.2arrow_forward2) The expected return of Project Y is at least equal to the expected return of Project X, and the variance of Y is less than that of X. What would you do? A) Prefer Project Y B) Accept both projects C) Prefer Project X D) Reject both projects.arrow_forwardD4) Give the following true population SIM (not estimated SIM): Ri-Rf=0.1%+1.2(Rb-Rf)+ϵi When estimating this true SIM, what will be the estimated value of alpha (the intercept), when the variance of ϵi is small? Theriskless rate is 0% and the market risk premium is 0.5%. Your answer should be in percentage points. Select one: a.0 b. near 0.1% but not exactly 0.1% c. 0.5% d. 0.1% e. near 0.5% but not exactly 0.5%arrow_forward
- c=$6, K=$30, S=$50, r=5%, T=3months WHAT IS THE LOWER BOUND OF CALL? Is there an arbitrage strategy? If so, what is the arbitrage strategy? And its relevant CF table?arrow_forwardThe delta of a call optio is very much in-the-money is likely close to a. 0 delta b. 100 deltaarrow_forward1. What was ABC's break even point in pesos? 2. What was ABC's margin of safety? 3. What was ABC's degree of operating leverage?arrow_forward
- Multinational Finance & investment Q2 d) Use a numerical example to illustrate that when there is a large change in the interest rate, the approximation error by using the duration and convexity rule is smaller than the approximation error by using the duration rule only.arrow_forwardHi, the first part of this question was not answered. Here is is: There is another security, C, whose payoff at t=1 is equal to $300 in the weak state and$600 in the strong state. - Find the no-arbitrage price (at t=0) of security C. - Find the rate of return for security Carrow_forwardD6) if the price elasticity of demand for a good is greater than three, Dan the demand for that good is? a. perfectly elastic b. elastic c. inelastic d. unit elasticarrow_forward
- Use the required return-beta equation from the CAPM What is the required return if the risk-free rate is 4%, beta 1.5 and the expected market return 8%? What is the risk-free rate if beta is 1.1, the required return 8.4% and the expected market return 8%? What is beta if the risk-free rate is 4%, the required return 12% and the expected market return 8%? What is the expected market return if the risk-free rate is 4%, beta 1.5 and the required return 12%?arrow_forward12 Using Put-Call Parity, prove that the delta of a Put is equal to the delta of a Call minus 1. What value for the delta of a put are expected if it is very much in the money?arrow_forwardA firm whose performance is sensitive to economy-wide changes will likely have a beta risk that:Select one:a. Is less than 1.b. Is zero.c. Exceeds 1.d. Is exactly 1.arrow_forward
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