# BUSI 530 BUSI530 Module 5 Homework 5 (Liberty University)

BUSI530 Module 5 Homework 5 (Liberty University)

1. Problem 111 Rate of Return (LO2)

A stock is selling today for $50 per share. At the end of the year, it pays a dividend of $2 per share and sells for $56.

2. Problem 113 Real versus Nominal Returns (LO2)

You purchase 100 shares of stock for $40 a share. The stock pays a $2 per share dividend at yearend. What is the rate of return on your investment for the endofyear stock prices listed below? What is your real (inflationadjusted) rate of return? Assume an inflation rate of 3%. (Leave no cells blank be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your "Real Rate of Return" answers to 2 decimal places.)

3. Problem 119 Risk Premiums (LO1)

Here are stock market and Treasury bill percentage returns between 2006 and 2010:

4. Problem 1117 Scenario Analysis (LO2)

Consider the following scenario analysis:

5. Problem 11-18 Portfolio Analysis (LO3)

You received credit for this question in a previous attempt

Scenario Recession Normal economy Boom

Rate of Return Probability Stocks Bonds .20 −9% +20%

.50 +21 +8 .30 +31 +8

6. Problem 1122 Risk and Return (LO2, 4)

A stock will provide a rate of return of either −21% or +32%.

7. Problem 127 CAPM and Expected Return (LO2)

The riskfree rate is 7% and the expected rate of return on the market portfolio is 11%.

8. Problem 1212 CAPM and Cost of Capital (LO3)

You received credit for this question in a previous attempt

The Treasury bill rate is 6% and the market risk premium is 7%.

9. Problem 1219 CAPM and Valuation (LO3)

You are considering the purchase of real estate that will provide perpetual income that should average $65,000 per year. How much will you pay for the property if you believe its market risk is the same as the market portfolio’s? The Tbill rate is 5%, and the expected market return is 8.0%.

10. Problem 1222 CAPM and Expected Return (LO2)

Stock A has a beta of .5, and investors expect it to return 10%. Stock B has a beta of 1.5, and investors expect it to return 16%. Use the CAPM to find the expected rate of return and the market risk premium on the market. (Do not round intermediate calculations. Round your answers to 1 decimal place.)

11. Problem 1229 CAPM (LO2)

We Do Bankruptcies is a law firm that specializes in providing advice to firms in financial distress. It prospers in recessions when other firms are struggling. Consequently, its beta is negative, −.1.

12. Problem 13 - 1 Cost of Debt (LO2)

Micro Spinoffs, Inc., issued 20year debt a year ago at par value with a coupon rate of 5%, paid annually. Today, the debt is selling at $1,050. If the firm’s tax bracket is 40%, what is its aftertax cost of debt? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

13. Problem 13-2 Cost of Preferred Stock (LO2)

Micro Spinoffs has preferred stock outstanding. The stock pays a dividend of $7 per share, and the stock sells for $50. What is the return on preferred stock?

14. Problem 13-3 Calculating WACC (LO3)

Micro Spinoffs, Inc., issued 20year debt a year ago at par value with a coupon rate of 5%, paid annually. Today, the debt is selling at $1,250. The firm’s tax bracket is 40%.

Micro Spinoffs also has preferred stock outstanding. The stock pays a dividend of $12 per share, and the stock sells for $50.

Micro Spinoffs’s cost of equity is 26%. What is its WACC if equity is 50%, preferred stock is 20%, and debt is 30% of total capital? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

15. Problem 13-5 Calculating WACC (LO3)

Reactive Industries has the following capital structure. Its corporate tax rate is 40%.

16. Problem 13-14 Cost of Equity (LO2)

Bunkhouse Electronics is a recently incorporated firm that makes electronic entertainment systems. Its earnings and dividends have been growing at a rate of 30%, and the current dividend yield is 3%. Its beta is 1.4, the market risk premium is 6%, and the riskfree rate is 5%.

17. Problem 13-16 Capital Structure (LO1)

Examine the following bookvalue balance sheet for University Products, Inc. The preferred stock currently sells for $12 per share and the common stock for $16 per share. There are 4 million common shares outstanding.

18. Problem 13-17 Calculating WACC (LO3)

Examine the following bookvalue balance sheet for University Products, Inc. The preferred stock currently sells for $15 per share and the common stock for $20 per share.