1: Wauchula Tech has an expected return of 14% based on the Capital Asset Pricing Model. If the market risk premium is 6.5% what would Wauchula Tech’s beta be?
Stock Return = Rf + Stock’s Beta * (Market Return – Rf)
14% = 4.53% + B * 6.5%
(.14-.0453) / .065 = B
B = 1.4569
2: 2009 is expected to be a down year on the stock market. Would Wauchula Tech be a good choice for your portfolio this year if the forecast is correct? Why
Betas that are greater than >1 tend to be more defensive. 1.4569 beta would indicate it would follow the market throughout the year. Since it is higher it would not be a really good investment if the stock market may have a down year if it trends with it.
3: Figure out the expected return for Proctor and Gamble (PG) if we can assume that the S&P 500 returns 10.5% on average using the stock’s listed beta and the current risk-free rate. Note that your answers may vary depending on when you get your information.
Return=Rf + βs*MRP
= .0342 + .58 * .105
4: Do five-forces analysis on Sullivan University as a business, based on what you know of the school and the college “market” in the greater Lexington area.
(1) Competition with Existing Firms
Sullivan University is the largest private college or university in Kentucky and offers a wide range of diploma degree programs. The school offers short term courses and more career-focused curriculum (Sullivan, 2009). The classes are smaller and more convenient and the school adapts to financial-aid plans easily.
(2) Possible New Entrants
Sullivan is growing faster than any other university and graduate/doctorate programs are beginning to develop. Sullivan’s career services that help 99% graduates succeed in job placement makes the University competitive compared to the surrounding schools (Sullivan, 2009).
(3) Substitute Products
Sullivan University provides majors that may not be found on a typical college campus. The National Center for Hospitality Studies features... [continues]
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