Question

ANSWER CHOICE ONLY. please answer all 5 questions. pleaseee.

1.)Which of the following cash flows should NOT be included when calculating the NPV of the decision to made today to produce a new car model?

a.expenditure on new plant and equipment needed for the new model

b.The reduction in the sales of the company's existing product model due to the of the new product line

c. Changes in net working capital.

d. The taxas owed from selling for more than value .

e. The cost of research and development during the previous three years.

2. Suppose three stocks in a portfolio have 0.74, 0.88 and 1.54. If those stocks are weighted .28,.13,.59 respectively, what is the portfolio expected return?

A.1.13

B.1.05

C.1.23

D.33.33

E.1.05

3. Modigliani & Miller when discussing capital structure argued that

A. Firms should maintain some borrowing capacity to deal with uncertainty

B. Firms find a trade off between the tax benefits and bankruptcy costs of debt

C. Capital structure is irrelevant in the real world because of homemade leverage

D. Firms use debt to signal their future prospect to the market

E. debt is better than equity because it had a tax advantage

4.Suppose a firm's bonds have a yield of 3.44%the required return on preferred stock is 8.84%, and required return on common stock is 11.42%, If sources of capital 0.32, 0.02 and .066 respectively, and firm's tax rate is 29.91%. what is the firm's weighted average of capital?

A.8.81%

B.8.49%

C.7.9%

D.7.98%

E.7.64%

5. If a firm has a beta =2.37, the risk-free rate =2.55%, and the expected return on the market is 11.71% what is the firms expected return?

A.22.6%

B.30.3%

C.25.71%

D.25.5%

E.24.26%

Answer 1

Answer to Question - 1 is Option "e"

"The cost of research and development during the previous three years.", Since this cost has been incurred in the past three years, this cost has become sunk cost and cannot in any way affect the decision making of a new project, since there is no impact of doing the project or not on the cost incurred before making the decision.

(Hey, I can solve a maximum of 1 Question, can you please post others separately, definitely will solve others)

Answer to Question -2 is Option "c"

Portfolio Return = (0.74*0.28)+(0.88*0.13)+(1.54*0.59)

Portfolio Return = 1.2302

Portfolio Return = 1.23 (Rounded to two decimals)

(Hey, I can solve a maximum of 1 Question, can you please post others separately, definitely will solve others)

Answer to Question-5 is Option "e"

Re = Rf + B*(Rm-Rf)

Where,

B = Beta of Stock

Rf = Risk-Free Return

Rm = Market Return

Re = 2.55%+(2.37*(11.71%-2.55%)

Re = 24.26%