Question

First and Ten Corporation’s stock returns have a covariance with the market portfolio of .0481. The standard deviation of the returns on the market portfolio is 18 percent and the expected market risk premium is 6.9 percent. The company has bonds outstanding with a total market value of $56.3 million and a yield to maturity of 6.5 percent. The company also has 5.5 million shares of common stock outstanding, each selling for $38. The company’s CEO considers the firm’s current debt-equity ratio optimal. The corporate tax rate is 23 percent and Treasury bills currently yield 3.9 percent. The company is considering the purchase of additional equipment that would cost $55.5 million. The expected unlevered cash flows from the equipment are $18.35 million per year for 5 years. Purchasing the equipment will not change the risk level of the firm.

Calculate the NPV of the project. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89)

Answer #1

First and Ten Corporation’s stock returns have a covariance with
the market portfolio of .0501. The standard deviation of the
returns on the market portfolio is 22 percent and the expected
market risk premium is 6.6 percent. The company has bonds
outstanding with a total market value of $56.7 million and a yield
to maturity of 6.9 percent. The company also has 5.9 million shares
of common stock outstanding, each selling for $34. The company’s
CEO considers the firm’s current...

First and Ten Corporation’s stock returns have a covariance with
the market portfolio of .0476. The standard deviation of the
returns on the market portfolio is 23 percent and the expected
market risk premium is 7.1 percent. The company has bonds
outstanding with a total market value of $56.2 million and a yield
to maturity of 6.4 percent. The company also has 5.4 million shares
of common stock outstanding, each selling for $39. The company’s
CEO considers the firm’s current...

First and Ten Corporation’s stock returns have a covariance with
the market portfolio of .0456. The standard deviation of the
returns on the market portfolio is 19 percent and the expected
market risk premium is 7.1 percent. The company has bonds
outstanding with a total market value of $55.8 million and a yield
to maturity of 6 percent. The company also has 5 million shares of
common stock outstanding, each selling for $43. The company’s CEO
considers the firm’s current...

Neon Corporation’s stock returns have a covariance with the
market portfolio of .0455. The standard deviation of the returns on
the market portfolio is 20 percent, and the expected market risk
premium is 7.9 percent. The company has bonds outstanding with a
total market value of $55.04 million and a yield to maturity of 6.9
percent. The company also has 4.54 million shares of common stock
outstanding, each selling for $24. The company’s CEO considers the
current debt–equity ratio optimal....

Neon Corporation’s stock returns have a covariance with the
market portfolio of .0455. The standard deviation of the returns on
the market portfolio is 20 percent, and the expected market risk
premium is 7.9 percent. The company has bonds outstanding with a
total market value of $55.04 million and a yield to maturity of 6.9
percent. The company also has 4.54 million shares of common stock
outstanding, each selling for $24. The company’s CEO considers the
current debt–equity ratio optimal....

Neon Corporation’s stock returns have a covariance with the
market portfolio of .0495. The standard deviation of the returns on
the market portfolio is 20 percent, and the expected market risk
premium is 8.3 percent. The company has bonds outstanding with a
total market value of $55.08 million and a yield to maturity of 7.3
percent. The company also has 4.58 million shares of common stock
outstanding, each selling for $28. The company’s CEO considers the
current debt–equity ratio optimal....

Neon Corporation’s stock returns have a covariance with the
market portfolio of .0385. The standard deviation of the returns on
the market portfolio is 30 percent, and the expected market risk
premium is 9.2 percent. The company has bonds outstanding with a
total market value of $55.17 million and a yield to maturity of 8.2
percent. The company also has 4.67 million shares of common stock
outstanding, each selling for $23. The company’s CEO considers the
current debt–equity ratio optimal....

Neon Corporation’s stock returns have a covariance with the
market portfolio of .0315. The standard deviation of the returns on
the market portfolio is 20 percent, and the expected market risk
premium is 8.5 percent. The company has bonds outstanding with a
total market value of $55.1 million and a yield to maturity of 7.5
percent. The company also has 4.60 million shares of common stock
outstanding, each selling for $30. The company’s CEO considers the
current debt–equity ratio optimal....

You have asset ABC. Its covariance with the market portfolio is
0.01. The expected price of the market portfolio is $120. Its
current price is $100. The standard deviation of the market
portfolio returns is 20%. The risk free rate is 5%.
(a) What is the expected return of company ABC? (b) What is the
expected return of company XYZ if the covariance of its returns
with the market is 0.05?

Celest Corporation’s stock returns have a ? with the market of
1.21. The company has issued perpetual debt, and pays interest at
the rate of 11%. The market value of Celest’s debt is 24M. There
are 4M shares of Celest’s stock outstanding, and the price per
share is $15. The tax rate is 34%, the Treasury bill rate of return
is 7%, and the risk premium is 8.5%. Celest must decide whether to
purchase additional capital equipment (this will expand...

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