1. Do all work in Excel. Do not submit Word files or *.pdf files.
2. Submit a single spreadsheet file for this assignment. Do not submit multiple files.
3. Place each problem on a separate spreadsheet tab.
4. Label all inputs and outputs and highlight your final answer.
5. Follow the directions in the “Guidelines for Developing Spreadsheets.”
P8–9 Rate of return, standard deviation, and coefficient of variation Mike is searching
for a stock to include in his current stock portfolio. He is interested in Hi-Tech,
Inc.; he …show more content…
Calculate an expected rate of return for each stock on the basis of its beta and the expectations of market and risk-free returns.
e. On the basis of the actual results, explain how each stock in the portfolio performed relative to those CAPM-generated expectations of performance. What factors could explain these differences?
P9–5 The cost of debt Gronseth Drywall Systems, Inc., is in discussions with its investment
bankers regarding the issuance of new bonds. The investment banker has informed the firm that different maturities will carry different coupon rates and sell at different prices. The firm must choose among several alternatives. In each case, the bonds will have a $1,000 par value and flotation costs will be $30 per bond. The company is taxed at a rate of 40%. Calculate the after-tax cost of financing with each of the following alternatives.
Coupon rate Time to maturity (years)
A 9% 16 $250
B 7 5 50
C 6 7 par
D 5 10 2 75
P9–7 Cost of preferred stock Taylor Systems has just issued preferred stock. The stock
has a 12% annual dividend and a $100 par value and was sold at $97.50 per share.
In addition, flotation costs of $2.50 per share must be paid.
a. Calculate the cost of the preferred stock.
b. If the firm sells the preferred stock with a 10% annual dividend and nets $90.00 after flotation costs, what is its cost?
P9–9 Cost of common stock equity: CAPM