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1- Your portfolio has a beta of 1.45. The portfolio consists of 15 percent U.S. Treasury bills, 31 percent stock A, and 54 percent stock B. Stock A has a risk level equivalent to that of the overall market. What is the beta of stock B?
2-Scanlin, Inc., is considering a project that will result in initial aftertax cash savings of \$1.88 million at the end of the first year, and these savings will grow at a rate of 3 percent per year indefinitely. The firm has a target debt–equity ratio of 0.85, a cost of equity of 12.8 percent, and an aftertax cost of debt of 5.6 percent. The cost-saving proposal is somewhat riskier than the usual project the firm undertakes; management uses the subjective approach and applies an adjustment factor of 2 percent to the cost of capital for such risky projects.

What is the maximum initial cost the company would be willing to pay for the project? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Do not round intermediate calculations and round your final answer to the nearest whole dollar amount.)
3- You are given the following information for Lightning Power Co. Assume the company’s tax rate is 35 percent.

Debt:

6,000 6.7 percent coupon bonds outstanding, \$1,000 par value, 25 years to maturity, selling for 103 percent of par; the bonds make semiannual payments.

Common stock: 390,000 shares outstanding, selling for \$57 per share; the beta is 1.13.

Preferred stock:

17,000 shares of 4 percent preferred stock outstanding, currently selling for \$77 per share.

Market: 6 percent market risk premium and 4.70 percent risk-free rate.

What is the company’s WACC? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
4- Use the option quote information shown here to answer the questions that follow. The stock is currently selling for \$28.

Calls Puts
Strike
Option Expiration Price Vol. Last Vol. Last
Macrosoft Feb 30 86 0.33 41 1.33
Mar 30 62 0.57 23 1.74
May 30 23 0.85 12 2.16
Aug 30 4 1.06 4 2.20

a.

Suppose you buy 11 contracts of the February 30 call option. How much will you pay, ignoring commissions?

Cost \$

Suppose you buy 11 contracts of the February 30 call option. Macrosoft stock is selling for \$31 per share on the expiration date.

b-1 How much is your options investment worth?

Payoff \$

b-2 What if the terminal stock price is \$30?

Payoff \$

Suppose you buy 11 contracts of the August 30 put option.

c-1 What is your maximum gain?

Maximum gain \$
c-2

On the expiration date, Macrosoft is selling for \$24 per share. How much is your options investment worth?

Position value \$

c-3 On the expiration date, Macrosoft is selling for \$24 per share. What is your net gain?

Net gain \$

Suppose you sell 11 of the August 30 put contracts.

d-1

What is your net gain or loss if Macrosoft is selling for \$26 at expiration? (Loss amount should be indicated by a minus sign.)

\$

d-2

What is your net gain or loss if Macrosoft is selling For \$32 at expiration? (Loss amount should be indicated by a minus sign.)

\$

d-3

What is the break-even price? (Round your answer to 2 decimal places. (e.g., 32.16))

Break-even \$
5- The treasurer of a major U.S. firm has \$27 million to invest for three months. The interest rate in the United States is 0.27 percent per month. The interest rate in Great Britain is 0.31 percent per month. The spot exchange rate is £0.627, and the three-month forward rate is £0.630.

What would be the value of the investment if the money is invested in U.S and Great Britain? (Enter your answer in thousands of dollars, not in millions. (e.g., 1,234,567). Round your answer to 2 decimal places. (e.g., 32.16))

U.S. \$
Great Britain \$
6- Lakonishok Equipment has an investment opportunity in Europe. The project costs €12 million and is expected to produce cash flows of €2.0 million in Year 1, €2.4 million in Year 2, and €3.5 million in Year 3. The current spot exchange rate is \$1.35/€; the current risk-free rate in the United States is 2.8 percent, compared to that in Europe of 2.0 percent. The appropriate discount rate for the project is estimated to be 14 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €9.0 million.

What is the NPV of the project? (Enter your answer in thousands of dollars, not in millions. (e.g., 1,234,567). Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

NPV \$

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