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# Risk Analysis

### An accrual not a cash-basis approach

Publicly traded firms are required to report to the investors using an accrual not a cash-basis approach. Do you think they should? What are the advantages? The drawbacks?

### Tropical Sweets is considering a project that will cost \$70 million and will generate expected cash flows of \$30 per year for three years. The cost of capital for this type of project is 10 percent and the risk-free rate is 6 percent.

Tropical Sweets is considering a project that will cost \$70 million and will generate expected cash flows of \$30 per year for three years. The cost of capital for this type of project is 10 percent and the risk-free rate is 6 percent. After discussions with the marketing department, you learn that there is a 30 percent chance of

### Calculating the value of the stock

Company A is paying a current dividend of \$2.09/share, with a 4% growth expectation into the future. The 3-month T-Bill, a risk-free asset, has an annual yield of 3.5%, the S&P has a 14% return, and the beta of the company is 1.5. Whats the stock's value today? if your valuation is correct, and if the stock was selling \$20.31 ho

### Finance

Need a bit of help to solve. Please review xls. file and and each question in word doc.

### Three Finance Questions on Risk

7-2) The following table shows the nominal returns on U. S. stocks and the rate of inflation. a. What was the standard deviation of the market returns? b. Calculate the average real return. Year Nominal Return (%) Inflation (%) 2004 12.5 3.3 2005 6.4 3.4 2006 15.8 2.5 2007 5.6 4.1 2008 37.2 0.1 7-10) Here are inflation rates

### Financial Risk & Required Return

Suppose that a person won the Florida lottery and was offered a choice of two prizes: (1) \$500,000 or (2) a coin-toss gamble in which he or she would get \$1 million if a head were flipped and zero if a tail. a. What is the expected dollar return on the gamble? b. Would the person choose the sure \$500,000 or t

### Finance: Project cost of capital with leverage.

Discuss the concept of valuation with leverage. How could we estimate the appropriate cost of capital for a project? Explore how the financing decision of the firm can affect both the cost of capital and the set of cash flows that we discount?

### Calculate the WACC of the Firm

78. Calculate the WACC of the firm given the following information: (a) Equity -\$20,000, (b) Debt - \$20,000, (c) Preferred Stock - \$4,000, (d) Tax Rate?" 30%, (e) Debt? Coupon \$70, Price \$1,250, Time until maturity: 20, (f) Equity, Market Rate 10%, and Risk free rate 3%, Beta 1.2, (g) Preferred Stock, Coupon \$50, Price \$55.

### ENGINEERING ECONOMIC ANALYSIS

What are the advantages and disadvantages of performing an engineering economic analysis? What are some of the challenges and issues that might be encountered during the process of performing such an analysis? The Book that I am using Project Management Process Methodologies, and economics 2nd editions.

### Managerial Economics BK books is an online retailer that also has 10,000 â??bricks and mortarâ? outlets worldwide. You are a risk â?" neutral manager within the Corporate Finance Division and are in dire need of a new financial analyst. You only interview students from the top MBA programs in your area. Thanks to your screening mechanisms and contacts, the student you interview ultimately differ only with respect to the wage that there are willing to accept. About 5 percent of acceptable candidates are willing to accept a salary of \$60,000, while 95 percent demand a salary of 110,000. There are two phases to the interview process that every interviewee must go through. Phase 1 is the initial one-hour on-campus interview. All candidates interviewed in Phase 1are also invited to Phase 2 of the interview, which consists of a five-hour office visit. In all, you spend six hours interviewing each candidate and value this time at \$750. In addition, it costs a total of 4,250 in travel expenses to interview each candidate. You are very impressed by the first interviewee completing both phases of BK books interviewing process, and she has indicated that her reservation salary is 110,000. Should you make her an offer at that salary or continue the interviewing process? Explain.

14. BK books is an online retailer that also has 10,000 â??bricks and mortarâ? outlets worldwide. You are a risk â?" neutral manager within the Corporate Finance Division and are in dire need of a new financial analyst. You only interview students from the top MBA programs in your area. Thanks to your screening mechanisms a

### Common stock

Common stock A has an expected return of 10%, a standard deviation of future returns of 25%, and a beta of 1.25. Common stock B has an expected return of 12%, a standard deviation of future returns of 15%, and a beta of 1.50. Which stock is riskier? Explain.

### Value of beta for DR pepper/snapple

Using Yahoo! Finance find the value of beta for DR pepper/snapple . a. What is the estimated beta coefficient of your company? What does this beta mean in terms of your choice to include this company in your overall portfolio? b. Given the beta of your company, the present yield to maturity on U.S. government bonds matu

### Portfolio / Standard Deviation

Dr. Filly invests \$100 in a risky asset and a risk-free asset. The risky asset has an expected return of 12% and a standard deviation of 15%, while the risk-free has a return of 5%. What percentages of Dr. Fillyâ??s money must be invested in the risk-free asset and the risky asset, respectively, to form a portfolio with a sta

### Calculating Expected Return & Standard Deviation

Suppose a risk-free asset has a 5 percent return and a second asset has an expected return of 13 percent with a standard deviation of 23 percent. Calculate the expected portfolio return and standard deviation of a portfolio consisting of 10 percent of the risk-free asset and 90 percent of the second asset.

### Calculate wacc

Questions attached Show all your calculations in this problem. Consider the following company. It has the following financial projections for the next two years (years 1 and 2) in millions of dollars. Assume depreciation is included in COGS. Year 0 Year 1 Year 2 Sales Revenue --- \$ 1,000 \$ 1,100 COGS --- 600 650

### Black Scholes Merton Model

A) Using the Black-Scholes-Merton model, calculate the price of a call and put given a market price of the underlying stock of \$83, the exercise price of \$85, 65 days to expiration, a risk-free rate of 4.5 percent, and the historical annual standard deviation of 30 percent. B) Does an arbitrage opportunity exist and what is i

### Find the future value of annuity

To pay for her college education, Gina is saving \$2,000 at the beginning of each year for the next eight years in a bank account paying 12 percent interest. How much will Gina have in that account at the end of 8th year? A) \$16,000 B) \$17,920 C) \$24,600 D) \$27,552 Risk aversion is the behavior exhibited by managers w

### Maximum Level of Risk Aversion

Consider a portfolio that offers an expected rate of return of 12% and a standard deviation of 18%. T-bills offer a risk free 7 % rate of return. What is the maximum level of risk aversion for which the risky portfolio is still preferred to t-bills?

### Decision Under Risk

Please help with problems below. Profit (in \$millions) if Demand is Output Level Weak Strong 1 million units 60 175 1.5 million units 50 200 2.0 million units â?"50 400 2. Now suppose that management believes the probability of weak

### NOT an example of increased compensation due to higher risk

Which of the following is NOT an example of increased compensation due to higher risk? Workers in the Mexican sex trade industry receive 23% higher wages for unprotected sexual acts. Oil platform welders receive 33% higher compensation for working on rigs that drill in deeper waters, and at higher pressures, than other

### Cost of Capital Help

Please help me figure out and show my work for this assignment You are provided the following information on a company. The total market value is \$40 million. The capital structure, shown here, is considered to be optimal. Accounting Value Market Value Bonds, \$1000 par, 6% coupon, 6% YTM

### Current and debt ratio

Pls. see attached.. Calculating Ratios Analyze the data in PepsiCo.'s annual reports and SEC filings (using 2009 & 2008 reports). Evaluate its financial performance (in 500 words or so) over the past two years using financial ratios. Calculate the following ratios for each year: a) Current b) Debt

### Risk and Reward

Describe the risk-return trade-off. Give at least one real world example of its use. What are the implications if an investor does not follow the risk-return trade-off.

### Scatter Diagram Characteristic Lines

You are given the following set of data: Historical Rates of Return Year NYSE Stock Y 1 4.0 % 2.5 % 2 14.3 19.7 3 19.0 12.0 4 - 14.7 - 10.0 5 - 26.5 - 16.3 6 37.2 33.9 7 23.8 5.8 8 - 7.2 2.1 9 6.6 14.2 10 20.5 23.5 11 30.6 20.0 Mean = 9.8 % 9.8 % = 19.6 % 14.8 % a. Construct

### Efficient Markets Hypothesis (EMH)

1. What is EMH? 2. How EMH impacts investment in securities? 3. How EMH impacts on corporate decisions? 4. Is, EMH, aplicable to real assets such as plant and equipment?

### Explain NPV and Certainty equivalent cash flows

Look at spreadsheet and use present value analysis to discount the cash flows. Determine if the project has a net positive or negative impact on the firm, Calculate the certainty equivalent cash flows and NPV. What kind of questions would you ask the CEO about economomic assumptions? Articulate the economic and political risk

### Required Return on Stocks

Stock A has a beta of 0.8, Stock B has a beta of 1.0, and Stock C has a beta of 1.2. Portfolio P has equal amounts invested in each of the three stocks. Each of the stocks has a standard deviation of 25%. The returns on the three stocks are independent of one another (i.e., the correlation coefficients all equal zero). Assume th

### Market Risk Premium

Assume that investors have recently become more risk averse, so the market risk premium has increased. Also, assume that the risk-free rate and expected inflation have not changed. Which of the following is most likely to occur? - The required rate of return for an average stock (beta = 1) will increase by an amount equal to

### Market Risk

Assume that investors have recently become more risk averse, so the market risk premium has increased. Also, assume that the risk-free rate and expected inflation have not changed. Which of the following is most likely to occur? - The required rate of return for an average stock (beta = 1) will increase by an amount equal to

### Capital Budgeting and Risk Analysis

Capital Budgeting and Risk Analysis ZeeBancorp is considering the establishment of a contract collection service subsidiary that would provide collection services to small- and medium-size firms. Compensation would be in the form of a percentage of the amount collected. For amounts collected up to \$100, the fee is 55 percent