"Rate Of Return" Essays and Research Papers

Rate Of Return

Accounting rate of return Accounting rate of return (also known as simple rate of return) is the ratio of estimated accounting profit of a project to the average investment made in the project. ARR is used in investment appraisal. Formula Accounting Rate of Return is calculated using the following formula: ARR =  Average Accounting Profit Average Investment Average accounting profit is the arithmetic mean of accounting income expected to be earned during each year of the project's life...

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Internal Rate of Return

INTERNAL RATE OF RETURN Many companies wants to have a return on their investment in a few years and begin to evaluate their projects optimistically calculating an internal rate of real return not yielding results in the end. This does not end up being expected by the companies; According to the article the authors John C. Kelleher and Justin J. MacCormack . They suggest that there is a tendency to a risky behavior, Companies started to run the risk of creating unrealistic numbers for themselves...

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Internal Rate of Return

Internal Rate of Return Meaning of Capital Budgeting  Capital budgeting can be defined as the process of analyzing, evaluating, and deciding whether resources should be allocated to a project or not.  Capital budgeting addresses the issue of strategic long-term investment decisions.  Process of capital budgeting ensure optimal allocation of resources and helps management work towards the goal of shareholder wealth maximization. Why Capital Budgeting is so Important?  Involve...

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Internal Rate of Return

financial manager for Barnett Corporation, wishes to evaluate three prospective investments: X, Y, and Z. Currently, the firm earns 12% on its investments, which have a risk index of 6%. The expected return and expected risk of the investments are as follows: |Investment |Expected return |Expected risk | | | |index | |X |14% |7% | |y |12 |8 | |z ...

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Investment: Rate of Return and Current Share Price

the Honor Pledge: I have neither given nor received any aid on this examination.________________ HELPFUL FORMULAS , , , , 1 , 1 , , 1 1 , , , , 1 1 , 1 1 1 1 1 1 1 2 , 1. Given an interest rate of 7.3 percent per year, what is the value at date t = 7 of a perpetual stream of $2,100 annual payments that begins at date t = 15? 2100 0.073 1 1.073 17,567.03 2. You’ve just joined the investment banking firm of Dewey, Cheatum, Howe...

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Internal Rate of Return and Tangshan Mining

000 | -$2,000,000 | 1 | 500,000 | | 2 | 500,000 | | 3 | 500,000 | | 4 | 500,000 | | 5 | 500,000 | | 6 | 500,000 | | 7 | 500,000 | 5,650,000 | a. Compute the NPV and IRR for the above two projects, assuming a 13% required rate of return. b. Discuss the ranking conflict. c. What decision should be made regarding these two projects? Answer: a. NPV of A = $211,305 NPV of B = $401,592.64 IRR of A = 16.33% IRR of B = 15.99% b. The later cash flow of B causes...

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Investment and Return

1. You are offered a T-note that pays $1,000 in 9 months (or 270 days) for $910. You have $910 in a bank that pays a 5% nominal rate, with 365 daily compounding. You plan to leave the money in the bank if you don’t buy the risk-free T-note. Which investment should you choose? Use the following all three solution methods to verify your answer. Greatest future wealth: FV Figure out FV of $910 left in a bank with 9 months, and then compare with T-note’s FV=$1,000 Inputs: N = 270, I/Y =5%/365=0...

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Investment and Rate

society as a whole is worse off. This is because cash is the financial asset and it becomes is a liability of the government upon the time you found the cash. So, the taxpayers will have to make up for the government liability. 2. The average rate of return on investment in large stocks has outpaced that on investments in T-Bills by about 8% since 1926 in US. Why, then, does anyone invest in T-Bills? Answer: This is because T-bill is regarded as an almost risk free asset as it is backed by the...

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Hearing: Internal Rate of Return and Terminal Value

building from Frank Thomas to produce his required 15% after-tax return? In order for Frank Thomas to earn his 15% after tax return, Harmonic must buyback the building for just over $11M. The calculations can be seen in the chart below. 3) What proportion of the terminal value must be distributed to Comet Capital to produce its required 25% before-tax rate of return? In order for Comet Capital to produce its 25% before tax return, they must receive about $73.5M terminal value. This amount...

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Investment and Return

Sharpe’s Portfolio Student Assignment 1. Returns and Risk Estimate and compare the returns and variability (i.e. annual standard deviation over the past five years) of Reynolds and Hasbro with that of the S&P 500 Index. Which stock appears to be riskiest? Reynolds appears to be the riskiest stock based on the returns and variability alone currently holding the highest average return out of two at 1.87%. With their higher return rate over the three they also hold the highest standard...

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Flirting: Investment and Return

Solution to Case 02 Risk and Return Flirting With Risk Questions: 1. Imagine you are Bill. How would you explain to Mary the relationship between risk and return of individual stocks? I would explain to Mary that risk and return are positively related, i.e. if one expects to earn higher returns, then one has to be willing to invest in stocks whose price can vary significantly from year to year or in different economic conditions. For example, in the table...

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Risk and return management

Risk and Return Management Risk and return management Darlene LaBarre MBA6161 Fin Markets & Institutions Capella on Line The risk-return spectrum is the relationship between the amount of return gained on an investment and the amount of risk undertaken in that investment.[citation needed] The more return sought, the more risk that must be undertaken! The progression There are various classes of possible investments, each with their own positions on the overall risk-return spectrum. The general...

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Return on Invested Capital Notes

Ch 4: Return on Invested Capital 1. Drivers of Return on Invested Capital ROIC = (1-Tax Rate)*((Price per Unit-Cost per Unit)/Invested Capital per Unit) A company with a competitive advantage will have a higher ROIC because it either can charge a premium price or can produce at a more efficient cost. The structure-conduct-performance (SCP) framework is the strategy model that underlies our thinking about what drives competitive advantage and ROIC. The structure of an industry influences...

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Risk and Return Homework Assignment

Homework ES 1. (TCO 8) The historical returns on large-company stocks, as reported by Ibbotson and Sinquefield, are based on: (Points : 3) the largest 20 percent of the stocks traded on the NYSE. the stocks of the largest 10 percent of the publicly traded firms in the U.S. all of the stocks listed on the NYSE. the stocks of the 500 companies included in the S&P 500 index. 2. (TCO 8) If the financial markets are efficient, then: (Points : 3) ...

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Rate of Return

ch10 Student: ___________________________________________________________________________ 1. The capital gains yield plus the dividend yield on a security is called the: A. geometric return. B. average period return. C. current yield. D. total return. 2. The expected return on a security in the market context is: A. a negative function of execs security risk. B. a positive function of the beta. C. a negative function of the beta. D. a positive function of the excess security...

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Risk and Return

portfolio beta of .90? a. $0 b. $268 c. $482 d. $543 e. $600 EXPECTED RETURN c 60. You recently purchased a stock that is expected to earn 12 percent in a booming economy, 8 percent in a normal economy and lose 5 percent in a recessionary economy. There is a 15 percent probability of a boom, a 75 percent chance of a normal economy, and a 10 percent chance of a recession. What is your expected rate of return on this stock? a. 5.00 percent b. 6.45 percent c. 7.30...

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Risk and Return Tradeoff Memo

Risk and Return Tradeoff Memo The process of portfolio construction can be quite complex. Analysts go through reams of statistics – past performance, future potential, and industry knowledge and rely on personal insights into the market to arrive at the final list (UOP, 2009). Every investor aims to maximize returns while minimizing risk. Individual securities must be evaluated not only on the risk-return trade-off in isolation but also on their contribution to the risk-return tradeoff of...

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Financial Risk and Return Considerations

[Financial Risk and Return Considerations] Explain how you would choose between the following situations. Develop your answers from the perspective of the principles of entrepreneurial finance presented earlier in the chapter. You may arrive at your answers with or without making actual calculations. A. You have $1,000 to invest for one year (this would be a luxury for most entrepreneurs). You can earn a 4% interest rate for one year at the Third First bank or a 5% interest rate at the First...

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Raising the Interest Rate

 Raising the Interest Rate Principles of Finance Introduction After years of declining interest rates, we are facing a dilemma; should the Federal government increase rates to contain inflation, or keep rates low to boost the US economy? Increases in consumption of oil, metals, materials, and food, both foreign and domestic, are increasing demand. Prices are rising on a global scale as demand increases. Additionally, the US is experiencing rising costs for healthcare and education. ...

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Risk & Return

Risk and Return Assignment Questions 1. Suppose a stock begins the year with a price of $25 per share and ends with a price of $35 per share. During the year it paid a $2 dividend per share. What are its dividend yield, its capital gain, and its total return for the year? 2. An investor receives the following dollar returns a stock investment of $25: $1.00 of dividends Share price rise of $2.00 Calculate the investor’s total return. 3. Below are the probabilities for the economy’s five...

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Risk and Return

Overview The Risk - Return Relationship Another fundamental relationship in the study of finance is the relationship between expected return and the expected level of associated risk. The nature of the relationship is that as the level of expected risk increases, the level of expected return also increases. The opposite is true as well. Lower levels of expected risk are associated with lower expected returns. This RISK-RETURN RELATIONSHIP is characterized as being a direct relationship...

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Finance: Interest and Risk-free Rate

False. Question 2 (5) The return of equity is equal to the return on debt of a project/firm Always true. Never true. Sometimes true. Question 3 (10 points) Moogle, Inc. is in the same business as Google, Inc., but has recently retired all its debt to become an all-equity firm. Its return on equity has dropped from 12.25% to 10.60% as a result of this. Google, Inc. continues to have debt in its capital structure, and its debt-to-equity ratio is 30%. What is the return on assets of Google, Inc...

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How Can Risk Influence Risk Premium? How Are Risk and Return Related?

How can risk influence risk premium? How are risk and return related? Risk and return are the fundamental basis upon which investors make their decision whether or not they should invest in a particular investment. How they are related and the influence between the two, is the decision making process that all investors must weigh up. This essay will show how risk can influence risk premium, outlining their relationship and how risk and return are related. Within any investment there is a certain...

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Comparative Study of Risk and Returns of Bse-200 Stocks

Comparative study of risk and returns of BSE-200 stocks Kapil Malhotra 10FN051 Objective of the Analysis: The objective of my study is to understand the need to analyse the movement of the market and fulfilling them so as to achieve my goal of becoming better investor/ trader. Profit and loss are the two inseparable features of the stock market. But losses can be minimized and profits can be increased with the help of Technicals. I have done the analysis on the basis of the daily closing...

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Return on Investment

Conclusion 7 1. Introduction An investment is an exposure of cash that has the objective of producing cash inflows in the future. The worthiness of an investment is measured by how much cash the investment is expected to generate. The analysis of Return on Investment (ROI) is a financial forecasting tool that assists the business manager in evaluating whether a proposed investment opportunity is worthwhile within the context of the company’s business objectives and financial constraints. The investments...

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Return on Investment

 ROI Project: Phase #1 Return on Investment (ROI): An examination of ROI financial analysis and its historical roots with the DuPont Company Return on Investment (ROI): An examination of ROI financial analysis and its historical roots with the DuPont Company Like it or not, with the current state of the economy, as well as, enforced implications of the Affordable Care Act, a large number of hospitals and healthcare agencies will close their doors for good...

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Portfolio Effect on Risk and Return

excluding any portfolio that offers an inferior return for a given amount of risk. While this concept seems obvious, one of your clients, Laura Spegele, is considering purchasing a stock she will bear. To convince her that the acquisition is not desirable, you want to demonstrate the trade-off between risk and return. While it is impractical to show the trade-off for all possible combinations, you believe that illustrating several combinations of risk and return and applying the same analysis to the specific...

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Risk and Return: Portfolio Theory and Asset Pricing Models Answers to End-of-Chapter Questions

that portfolio which provides the highest expected return for any degree of risk. Alternatively, the efficient portfolio is that which provides the lowest degree of risk for any expected return. d. The efficient frontier is the set of efficient portfolios out of the full set of potential portfolios. On a graph, the efficient frontier constitutes the boundary line of the set of potential portfolios. e. An indifference curve is the risk/return trade-off function for a particular investor and...

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Risk free rate

despite solid investment returns http://www.otpp.com/110 The Teachers’ Pension Challenge http://fundingyourpension.com/pdf/pension_challenge_infographic.pdf Investments Overview [How we invest] http://www.otpp.com/47 Key Investment Facts Download Investment Summary — as at Dec 31, 2012 http://www.otpp.com/documents/10179/686422/Investment+Summary+2012/d2b54009-f5ab-4ccf-8288-b0a25ddc6157 See footnote 3 [below] 3The total fund also includes Absolute Return Strategies ($12.3 billion...

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A Case for ITIL Return on Investment (ROI) White Paper

A CASE FOR ITIL® RETURN ON INVESTMENT (ROI) WHITE PAPER PRESENTED BY: PUBLISHED: VERSION: KRISTA LEWIS AND LISA SCHWARTZ, ITSM ACADEMY JANUARY 19, 2009 1 SECTIONS: ROI CALCULATOR CASE STUDY SYNOPSIS ADDITIONAL RESOURCES ®ITIL is a registered trademark of the Office of Government Commerce. This document is copyright and can not be reproduced. Page 1 of 5   A CASE FOR ITIL® RETURN ON INVESTMENT ROI CALCULATOR Whether facing standard budget constraints, a merger/acquisition...

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Net Present Value and B. Internal Rate

value. B. internal rate of return. C. accounting return. D. profitability index. E. payback period. The internal rate of return is defined as the: A. maximum rate of return a firm expects to earn on a project. B. rate of return a project will generate if the project in financed solely with internal funds. C. discount rate that equates the net cash inflows of a project to zero. D. discount rate which causes the net present value of a project to equal zero. E. discount rate that causes the...

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ASS2 FIN 3331 Risk And Return Assignmen

Nguyen Duc Thuan ID: 1349672 FIN 3331 – Risk & Return Assignment 1. Answers: The expected return of this stock is: E[RJ] = 0.2(12%) + 0.35(18%) + 0.3(-10%) + 0.15(10%) = 7.2% The standard deviation is: 2J = 0.2(0.12 – 0.072)2 + 0.35(0.18 – 0.072)2 + 0.3(-0.1 – 0.072)2 + 0.15(0.1 – 0.072)2 = 0.0135 J = = 11.63% 2. Answers: The average return and standard deviation of Large co. stock return is: Sum of Large co. stock = -14.69 – 26.47 + 37.23 + 23.93 – 7.16 + 6.57 = 19.41 Mean = Sum/N...

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Rate of Return and Stock

asked for your advice. The three stocks currently held all have b = 1.0, and they are perfectly positively correlated with the market. Potential new Stocks A and B both have expected returns of 15%, are in equilibrium, and are equally correlated with the market, with r = 0.75. However, Stock A's standard deviation of returns is 12% versus 8% for Stock B. Which stock should this investor add to his or her portfolio, or does the choice not matter? Answer: B, Stock B Since she has a portfolio the number...

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Total Cost of Ownership vs Return on Investment (Roi)

Total Cost of Ownership: This is defined as the an approach for measuring financial returns which involves consideration of all the additional costs required to support and maintain the item purchased for its full useful life and adding such costs to the purchase price (Reh, n.d). Calculating TCO No general formula for calculating TCO exist the general principle is Purchase Costs + All other additional costs. In IT investments some additional costs might be cost of maintenance, support costs...

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Internal Rate of Return (IRR) and Net Present Value (NPV) are both powerful tools used in business to determine whether or not to invest in a particular project; both methods have its pros and cons.

Internal Rate of Return (IRR) and Net Present Value (NPV) are both powerful tools used in business to determine whether or not to invest in a particular project; both methods have its pros and cons. If given a choice I would choose NPV, because of the potential to anticipate profitability. As it is assumed that the objective of a firm is to create as much shareholder wealth as possible for its owners through the efficient use of resources, the preferred method in determining whether or not to invest...

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3 Factors That Influence the Rate of Return

3 Factors that Influence Rate of Return Any bondholder, or any investor for that matter, will allow three factors to influence his or her required rate of return. The three factors are the following: real (pure) rate of return, inflation, and risk premium. These three factors equal the risk free rate which is the rate of return of an investment with no risk of financial loss. This is also the rate that investors would expect from an absolutely risk-free investment over a period of time. ...

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Annual Percentage Rate

Which one of the following statements is correct concerning annual percentages rates (APRs)? Answer: The APR is equal to the monthly interest rate multiplied by 12 Give an interest rate of zero percent, the future value of a lump sum invested today will always: Answer: remain constant Answer: II and IV A firm created as a separate and distinct legal entity that may be owned by one or more individuals or entities is called a: corporation The capital structure of a firm refers to the...

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Exercise: Return on Investment

 Chapter 11 Exercises 11-5 Return on Investment (ROI) Provide the missing data in the following table for a distributor of Martial arts products: 11-9 Return on Investment (ROI) and Residual Income Relations A family friend has asked your help in analyzing the operations of three anonymous companies operating in the same service sector industry. Supply the missing information in the table below: 11-18 Return on Investment (ROI) and Residual Income “I know headquarters wants us to add that new...

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How to Calculate Return on Investment (Roi) for Property Rental Yields

Case Study: How to Calculate Return Profits on Rental Property Investment make more money through rental income property investment Property Profile Property Type : Serviced Apartment Size : 821 square feet Purchase Price : $ 235,900.00 Down Payment : $ 23,590.00 Home Loan Amount : $ 212,310.00 Home Loan Installment : $ 1,173.00 per month Gross Rental : $ 2,200.00 per month Expenses : $ 832.37 per month * Service Charges = $ 164.05 * Sinking Fund = $ 16.79 * Quit Rent...

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Internal Rate of Return

Internal Rate of Return In investment decision analysis you may need to calculate internal rate of return. “Internal rate of return (IRR) is the discount rate that gives the project a zero NPV” (McLaney, 2006). It is a good choice to use for investment projects. There is a formula for the internal rate of return: (A is the lower discount rate and B is the higher rate, a is the NPV at the lower rate and b is the NPV at the higher rate.) For example the Net Present Value (NPV) is 88 when the...

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Net Present Value and Discount Rate

cost the amount of $ 60,000. The discount rate is 10%. The cash flows before depreciation and tax are as follows: Year Proposal A Proposal B $ $ 0 (60,000) (60,000) 1 18,000 19,000 2 15,000 17,000 3 18,000 19,000 4 16,000 14,000 5 19,000 15,000 6 14,000 13,000 Evaluate the above proposals according to: 1. Pay Back Period. 2. Accounting Rate of Return (ARR) 3. Net present value method (NPV) ...

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Finance: Net Present Value and Rate

$1000 today at an interest rate of 10% per year, how much will you have 20 years from now, assuming no withdrawals in interim? 2. a. If you invest $100 every year from the next 20 years starting one year from today and you earn interest of 10% per year, how much will you have at the end of the 20 years? b. How much must you invest each year if you want to have $50000 at the end of the 20 years? 3. What is the present value of the following cash flows at an interest rate of 10% per year? (Hints:...

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Net Present Value and Discount Rate

following cash flows if the discount rate is 14 percent?  [pic]     A. -$3,140.43 B. -$929.90 C. $247.181 D. $1,027.67 E. $1,127.08   2. Timothy is considering an investment of $10,000. This investment is supposedly going to provide him with cash inflows of $2,500 in the first year and $6,000 a year for the following 2 years. At a discount rate of zero percent this investment has a net present value (NPV) of _____, but at the relevant discount rate of 18 percent the project's NPV is:  ...

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FIN 515 Homework Week 4 After cost debt and valuation chapter 7 and 9

Constant Growth Valuation 7–2) Dividend Expected Growth Rate Required ROR stock (rs) 1.50/(.07-.15)= Stock price Price = Dividend / (Required Return - Growth Rate) P7-4 $1.50 7% 15% Constant Growth Valuation Boehm Incorporated is expected to pay a $1.50 per share dividend at the end of this year (i.e., D1 = $1.50). The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock, rs, is 15%. What is the value per share of Boehm’s...

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Chapter 2, Module 2 Notes

periods, or calculate what rate of return is implied by a given set of cash flows Single Period – Rate of Return * N = amount of years * I% = x (what we’re trying to find) * PV = How much it’s worth today * FV = How much it’s worth at maturity date * Discount bonds pay no interest during it’s life, the interest you receive is part of the final payment (FV) * The interest rate is also known as the discount rate * The rate that makes us indifferent between...

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Fin316 Final Exam Practice

expected return is positively related to its beta. >> True 2. In practice, the market portfolio is often represented by: A. a portfolio of U.S. Treasury securities. B. a diversified stock market index. C. an investor's mutual fund portfolio. D. the historic record of stock market returns. 3. A stock's beta measures the: A. average return on the stock. B. variability in the stock's returns compared to that of the market portfolio. C. difference between the return on the stock and return on the market...

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Case 78 Questions McDaniel Nienberg Palmer Pastor

Questions 1. According to ValueLine estimates in Figure 1, James River’s expected an­nu­al dividend growth rate from the 91–93 to 97–99 period is 5.50%, and the next dividend (1995) is expected to be $0.60. Assume that the re­quired return for James River was 8.36% on January 1 1995 and that the 5.50% growth rate was expected to continue indefinitely. a. Based on the Constant Growth Rate or Gordon Model, what was James River’s price at the beginning of 1995? b. What conditions must hold to use...

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How to Calculate Beta

expected rate of return. Beta is one of the fundamentals stock analysts consider when choosing stocks for their portfolios, along with price-to-earnings ratio, shareholder's equity, debt-to-equity ratio and other factors. Here's how to calculate beta and use beta to figure an expected rate of return. Steps Calculating Beta for a Stock 1. ------------------------------------------------- 1 ------------------------------------------------- Find the risk-free rate. This is the rate of return...

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fin 314 sheet

subtract Best case +P, +Q, -V, -FC Worst case –P, -Q, +V, +FC Best case scenario: OFC = [(Q+ x P+) – (Q+ x V-) – FC- – DEP] (1 - TAX RATE) +DEP high rev, low cost Worst case scenario: OCF= [(Q- x P-) – (Q- x V+) – FC+ – DEP] (1 - TAX RATE) +DEP high cost, low rev Plug OCF as payment and solve for (PV) PV – FC = best case TI-83 2nd finance, calc NVP, (% return on proj (given), - CF0 (cost given), { (OCF) best, worst case answer, repeat best case answer for how many years } ) Total cost: TC = VC...

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Fin 571 Problems Sets

(Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond’s coupon rate is 7.4%. What is the fair value of this bond? Calculating PV factor: i= required return = 9% = 0.09 n= 10 years Using Cash Flow of $1000 to calculate present value, Cash flow= $1000 PV factor = 1/(1+i)^n = 0.42241 PV = $1000*0.42241= 422.41 Using Coupon Rate to calculate present value of Annuity Cash flow= $1000 * 7.4/100 = $74 PV factor = (1/i)*(1-...

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Finance Chapter 1-5, 7-10

1. Barker Corp. has a beta of 1.10, the real risk-free rate is 2.00%, investors expect a 3.00% future inflation rate, and the market risk premium is 4.70%. What is Barker's required rate of return? Answer D | | | |2010 |21.00% | |2009 |-12.50% | |2008 ...

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Ddm Case Study

* OVERVIEW OF THE CASE * End run provides two schemes: 1. Worried bear 2. Happy Bulls * With EndRun’s Worried bear fund scheme you can earn 400% rate of return in times of recession. * With EndRun’s Happy Bulls fund scheme you can earn 12 times your initial investment in fast expanding booming economy. * COVARIANCE The covariance measures the strength of relationship between two...

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Marriott Corporation Case

------------------------------------------------- Introduction Founded in 1927, Marriott Corporation has become one of the leading food service companies in the United States. As of 1987, Marriott recorded a profit of $233 million on sales of $6.5 billion and retained a high sales growth rate of 24%. Marriott runs on three major lines of business lodging, contract services, and restaurants. Lodging division which includes 361 hotels generated 41% of 1987 sales and 51% profits. Contract services division which provides food and services...

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Filmore Enterprises

the attachment (expected rate of return) b. Based soly on expected returns, investment on CPC appears the best, for it has 9.70% expected returns, yet the investment on MORELY appears the cost, which has only 5.70% expected returns. c. Rate of return is mainly connected with the beta coefficient, which means if the rate of return is relatively higher, then the company will have higher risk. Judging from table1 in the attachment, CPC with higher rate of return(9.70%) has higher beta coefficient(1...

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Marriot Corp: Cost of Capital

Introduction and background We are conducting an analysis of Marriott Corporation for calculating the hurdle rates at each of the firm's three divisions--lodging division, restaurant division and contract service division. Marriott uses Weighted Average Cost of Capital (WACC) as the hurdle rate, and use it to discount the appropriate cash flows when evaluate an investment project. Our goal is to determine the WACC at every division base on the information that the case has provided. First...

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Minicase Prairie Stores

is the Rate of Return Percentage? In the mini-case, Mr. Breezeway indicated two kinds of percentage to determine the required return. One of them is the companies' return on book equity (% 15) and the other one is the investment return percentage in the rural supermarket industry (% 11) which shows that investors in rural supermarket chains, with risks similar to Prairie Home Stores, expected to earn about % 11 percent on average. Since the companies' rate of return determined by the rate of return...

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Roth- Case Paper

a group of returns from different stocks which was classified by the type of economy. This could give a direction of what these stocks might face in the future and the return each was likely to experience in different situations. PART #2 METHODOLOGIES 1) Beta=  [ Cov(r, Km) ] / [ StdDev(Km) ]2 R= is the return rate of the investment Km = is the return rate of the asset class 2) CAPM= ra = rf + Betaa(rm - rf) Ra= is the asset price Rf = is the risk-free rate of return Beta= is...

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Investment and Cent Coupon Bonds

Problems on Risk and Return 1) Using the following returns, calculate the arithmetic average returns, the variances and the standard deviations for X and Y. Year X Y 1 8% 16% 2 21 38 3 17 14 4 -16 -21 5 9 26 2) You bought one of the Great White Shark Repellant Co’s 8 per cent coupon bonds one year ago for $1030. These bonds make annual payments and mature six years from now. Suppose you decide to sell your bonds today ,when the required return on the bonds is 7 per cent...

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Managerial Finance

------------------------------------------------- Chapter 5: Bonds, Bond Valuation, and Interest Rates (5–1) Bond Valuation with Annual Payments Jackson Corporation’s bonds have N=12 years remaining to maturity. Interest is paid annually, the bonds have a FV=$1,000 par value, and the coupon interest rate is PMT=8%. The bonds have a yield to maturity of I=9%. What is the current market price of these bonds? $928.39 Calculator solution: Input: N = 12, I = 9, PMT = 80, FV = 1000, Solve for PV =...

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Lex Cost of Capital

than £340 million of funds. To reinvest this huge amount of funds it evaluates many investment options and acquisitions. To evaluate the worth of new investments, Lex uses discounted cash flow analysis. In order to employ DCF analysis method, discount rate or cost of capital required. Now the question is arises ‘what should be real cost of capital’. Case Analysis: After a long series of acquisition and divestment, Lex service Plc’s businesses remains to consist only two fundamental halves: * Automotive...

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