Instructions
Please complete the following:
Â· Problem P8-18
Â· Problem P8-28
Â· Problem P9-5
Â· Problem P9-15
Â· Integrative Case 4 - Enviro Plastics Company
General Instructions for Assignments
Please only submit one Excel file with all problems included.
Ca
y all calculations to TWO decimal places to reduce rounding e
or, especially in multi-step problems.
There are several assigned problems where the solution will require graphing. This will require using the graphing function in Excel.
If you submit your answer without an Excel graph points will be deducted.
If you submit your answer by drawing a graph even if it is co
ect, points will be deducted.
Remember to show all calculations. You must show your calculation and solution. please see the example below. If you do not show how you a
ived at your answers, you will not receive credit. Merely showing the formula without the calculations is not sufficient. The problems should be set up in columns or using other appropriate formatsâ€”do not hide all steps in formulas behind one answer. I must still be able to see how you a
ived at the answer.
Â· Problem P8-18
Portfolio analysis: You have been given the historical return data shown in the first table on three assets F, G and H, over the period XXXXXXXXXX
Using these assets, you have isolated the three investment alternatives shown in the following table.
a. Calculate the average return over the four-year period for each of the three alternatives.
. Calculate the standard deviation of returns over the four-year period for each of the three alternatives.
c. Use your findings in parts a and b to calculate the coefficient of variation of each of the three alternatives.
d. On the basis of your findings, which of the three investment alternatives do you think performed better over the period? Why?
Â· Problem P8-28
Betas and risk ranking: You are considering three stocks A,B, and C, for possible inclusion in your investment portfolio. Stock A has a beta of 0.80, stock B has a beta of 1.40, and stock C has a beta of -0.30
a. Rank these stocks from the most risky to the least risky.
. If the return on the market portfolio increased by 12%, what change would you expect in the return for each stock?
c. If the return on the market portfolio decreased by 5%, what change would you expect in the return for each stock?
d. If you believe that the stock market was getting ready to experience a significant decline, which stock would you probably add to your portfolio? Why?
e. If you anticipated a major stock market rally, which stock would you add to your portfolio? why?
Â· Problem P9-5
After-tax cost of debt: For each of the following $1,000 -par-value bonds, assuming annual interest payment and a 21% tax rate, calculate the after-tax cost of debt.
Â· Problem P9-15
WACC: Market value weights: The market values and after-tax costs of various sources of capital used by Ridge Tool are shown in the following table.
a. Calculate the firms WACC
. Explain how the firm can use this cost in the investment decision-making process.
Â· Integrative Case 4 - Enviro Plastics Company
See case details below, please
a. Calculate Enviroâ€™s cu
ent after-tax cost of long-term debt.
. Calculate Enviroâ€™s cu
ent cost of prefe
ed stock
c. Calculate Enviroâ€™s cu
ent cost of common stock.
d. Calculate Enviroâ€™s cu
ent weighted average cost capital (WACC).
e. (1) Assuming that the cost of debt financing does not change, what effect would a shift to a more highly leveraged capital structure consisting of 50% long-term debt, 0% prefe
ed stock, and 50% common stock have on the risk premium for Enviroâ€™s common stock?
(2) What would be Enviroâ€™s new cost of common equity?
(3) What would be Enviroâ€™s new weighted average cost of capital (WACC) ?
(4) Which capital structureâ€”the original one or this oneâ€”seems better? Why?