Description
Complete the following problems from Chapters 8 and 9 in Principles of Managerial Finance:
- Risk and Return: P8-1; P8-4; P8-7; P8-14; P8-20; P8-23; P8-24
- Cost of Capital: P9-1; P9-2; P9-9; P9-14; P9-17
Use the Chapters 8-9 Excel resource (if needed) to complete the problem-set assignment in this topic.
Please show all work for each problem. Link to book: http://www.gcumedia.com/digital-resources/pearson/…Login:BVandelune Password: Lun1brdd
Forecasted Returns, Expec
Assets A, B, and C
Assets
Year
A
B
2015
2016
2017
2018
2019
2020
2021
0.1
0.13
0.15
0.14
0.16
0.14
0.12
0.1
0.11
0.08
0.12
0.1
0.15
0.15
Statistics:
Expected value
Standard deviation
=AVERAGE(C7:C13)
=STDEV(C7:C13)
=AVERAGE(D7:D13)
=STDEV(D7:D13)
Note: In each two stock portfolio, the weights of each security is equal
0.5
0.5
Forecasted Returns, Expected Values, and Standard Deviations for
Assets A, B, and C and Portfolios AB, AC, and BC
Portfolios
C
0.12
0.14
0.1
0.11
0.09
0.09
0.1
AB
=SUMPRODUCT($C$24:$D$24,C7:D7)
=SUMPRODUCT($C$24:$D$24,C8:D8)
=SUMPRODUCT($C$24:$D$24,C9:D9)
=SUMPRODUCT($C$24:$D$24,C10:D10)
=SUMPRODUCT($C$24:$D$24,C11:D11)
=SUMPRODUCT($C$24:$D$24,C12:D12)
=SUMPRODUCT($C$24:$D$24,C13:D13)
=AVERAGE(E7:E13)
=STDEV(E7:E13)
=AVERAGE(G7:G13)
=STDEV(G7:G13)
0.5
viations for
BC
Portfolios
AC
=($C$24*C7)+($E$24*E7)
=($C$24*C8)+($E$24*E8)
=($C$24*C9)+($E$24*E9)
=($C$24*C10)+($E$24*E10)
=($C$24*C11)+($E$24*E11)
=($C$24*C12)+($E$24*E12)
=($C$24*C13)+($E$24*E13)
BC
=SUMPRODUCT($D$24:$E$24,D7:E7)
=SUMPRODUCT($D$24:$E$24,D8:E8)
=SUMPRODUCT($D$24:$E$24,D9:E9)
=SUMPRODUCT($D$24:$E$24,D10:E10)
=SUMPRODUCT($D$24:$E$24,D11:E11)
=SUMPRODUCT($D$24:$E$24,D12:E12)
=SUMPRODUCT($D$24:$E$24,D13:E13)
=AVERAGE(H7:H13)
=STDEV(H7:H13)
=AVERAGE(I7:I13)
=STDEV(I7:I13)
Chapter 9 The Cost of Capital
Nova Corporation
Debt
Net Proceeds
maturity
coupon rate
par
$
coupon payment
$
10
6.50%
1,000
65
Required bond price
Flotation percent
Flotation cost
Net Proceeds
Trial and error YTM
End of Year(s) Cash Flow
0
$
960
1 – 10
$
(65)
10
$
(1,000)
$
$
7.0714%
$
$
PV
960.00
(455.03)
(504.97)
0.00 (The YTM of 7.0714% equates the NPV to zero
Before-tax Cost of Debt
Tax rate
After-tax Cost of Debt
Par value
$
100.00
Annual percentage rate 6%
Annual dividend
$
6.00
980
2.00%
20
960
Preferred Stock
Expected sale price
Flotation cost
Net Proceeds
Cost of Preferred Stock
7.0714%
40.00%
4.24% (a)
$
$
$
102.00
4.00
98.00
6.12% (b)
Common Stock
Gordon Model
Expected dividend
$
3.25
Expected growth rate
5%
Current price $
35.00
Flotation cost $
2.00
Adjusted Price $
33.00
Cost of Common Stock
14.85% (c)
Weighted Average Cost of Capital
Weight in debt
0.35
Weight in preferred stock0.12
Weight in common stock0.53
Sum of weights
1.00
WACC
10.09% (d)
4% equates the NPV to zero)
Purchase answer to see full
attachment
Assets A, B, and C
Assets
Year
A
B
2015
2016
2017
2018
2019
2020
2021
0.1
0.13
0.15
0.14
0.16
0.14
0.12
0.1
0.11
0.08
0.12
0.1
0.15
0.15
Statistics:
Expected value
Standard deviation
=AVERAGE(C7:C13)
=STDEV(C7:C13)
=AVERAGE(D7:D13)
=STDEV(D7:D13)
Note: In each two stock portfolio, the weights of each security is equal
0.5
0.5
Forecasted Returns, Expected Values, and Standard Deviations for
Assets A, B, and C and Portfolios AB, AC, and BC
Portfolios
C
0.12
0.14
0.1
0.11
0.09
0.09
0.1
AB
=SUMPRODUCT($C$24:$D$24,C7:D7)
=SUMPRODUCT($C$24:$D$24,C8:D8)
=SUMPRODUCT($C$24:$D$24,C9:D9)
=SUMPRODUCT($C$24:$D$24,C10:D10)
=SUMPRODUCT($C$24:$D$24,C11:D11)
=SUMPRODUCT($C$24:$D$24,C12:D12)
=SUMPRODUCT($C$24:$D$24,C13:D13)
=AVERAGE(E7:E13)
=STDEV(E7:E13)
=AVERAGE(G7:G13)
=STDEV(G7:G13)
0.5
viations for
BC
Portfolios
AC
=($C$24*C7)+($E$24*E7)
=($C$24*C8)+($E$24*E8)
=($C$24*C9)+($E$24*E9)
=($C$24*C10)+($E$24*E10)
=($C$24*C11)+($E$24*E11)
=($C$24*C12)+($E$24*E12)
=($C$24*C13)+($E$24*E13)
BC
=SUMPRODUCT($D$24:$E$24,D7:E7)
=SUMPRODUCT($D$24:$E$24,D8:E8)
=SUMPRODUCT($D$24:$E$24,D9:E9)
=SUMPRODUCT($D$24:$E$24,D10:E10)
=SUMPRODUCT($D$24:$E$24,D11:E11)
=SUMPRODUCT($D$24:$E$24,D12:E12)
=SUMPRODUCT($D$24:$E$24,D13:E13)
=AVERAGE(H7:H13)
=STDEV(H7:H13)
=AVERAGE(I7:I13)
=STDEV(I7:I13)
Chapter 9 The Cost of Capital
Nova Corporation
Debt
Net Proceeds
maturity
coupon rate
par
$
coupon payment
$
10
6.50%
1,000
65
Required bond price
Flotation percent
Flotation cost
Net Proceeds
Trial and error YTM
End of Year(s) Cash Flow
0
$
960
1 – 10
$
(65)
10
$
(1,000)
$
$
7.0714%
$
$
PV
960.00
(455.03)
(504.97)
0.00 (The YTM of 7.0714% equates the NPV to zero
Before-tax Cost of Debt
Tax rate
After-tax Cost of Debt
Par value
$
100.00
Annual percentage rate 6%
Annual dividend
$
6.00
980
2.00%
20
960
Preferred Stock
Expected sale price
Flotation cost
Net Proceeds
Cost of Preferred Stock
7.0714%
40.00%
4.24% (a)
$
$
$
102.00
4.00
98.00
6.12% (b)
Common Stock
Gordon Model
Expected dividend
$
3.25
Expected growth rate
5%
Current price $
35.00
Flotation cost $
2.00
Adjusted Price $
33.00
Cost of Common Stock
14.85% (c)
Weighted Average Cost of Capital
Weight in debt
0.35
Weight in preferred stock0.12
Weight in common stock0.53
Sum of weights
1.00
WACC
10.09% (d)
4% equates the NPV to zero)
Purchase answer to see full
attachment
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