Question

QUESTION 11

1. Bill Dukes has $100,000 invested in a 2-stock portfolio. $50,000 is invested in Stock X and the remainder is invested in Stock Y. X's beta is 1.50 and Y's beta is 1.70. What is the portfolio's beta?

   		1.75
   		0.72
   		1.80
   		1.60
   		0.98

  

QUESTION 12

1. Suppose Leonard, Nixon, & Shull Corporation's projected free cash flow for next year is $100,000, and FCF is expected to grow at a constant rate of 6%. If the company's weighted average cost of capital is 11%, what is the value of its operations?

   	1.	$2,000,000
   	2.	$1,714,750
   	3.	$1,900,000
   	4.	$1,805,000
   	5.	$2,100,000

Answer 1

11) D. 1.60

Portfolio's beta = [($50,000/$100,000) × 1.50] + [($50,000/$100,000) × 1.70] = 1.60

12) 1. $2,000,000

P0 = FCF of next year / (WACC - Growth)

P0 = $100,000 / (0.11 - 0.06) = $2,000,000