5. Consider the following information:
Rate of return if state occurs
State of Probability of
Economy State of Economy Stock R Stock S Stock T
Boom .25 .30 .40 .25
Good .40 .10 .15 .10
Poor .25 .00 -.05 -.10
Bust .10 -.25 -.15 -.20
Your portfolio is invested 40% in stock R, 35% in Stock S, and 25% in Stock T. What is the expected return of the portfolio? What is the standard deviation of the return?
6. Given the following information for Acme Corporation, find the weighted average cost of capital. Assume the company's tax rate is 3 5%.
Debt: 10,000 9 percent coupon bonds outstanding, $ 1,000 par value, 12
years to maturity, selling for 103 percent of par; the bonds make
Common stock; 100,000 shares outstanding, selling for $65 per share; beta is .95. Preferred stock: 15,000 shares of 7.5% preferred stock outstanding, currently selling
for $80 per share.
Market: 7 percent market risk premium and 5 percent risk-free rate.
7. Consider the following financial statement information for the Acme Corporation:
Item Beginning Ending
Inventory $120,000,000 $105,000,000
Accounts receivable 80,000,000 84,000,000
Accounts payable 75,000,000 79,000,000
Net sales $800,000,000
Cost of goods sold 550,000,000
Calculate the operating and cash cycles.
Calculations for expected return, standard deviation of the return, weighted average cost of capital, and operating and cash cycles have been carried out.