You have the following data on three stocks: Stock Standard Deviation Beta A 20% 0.59 B 10% 0.61 C 12% 1.29 If you are a strict risk minimizer, you would choose Stock ____ if it is to be held in isolation and Stock ____ if it is to be held as part of a well-diversified portfolio.

Wei Inc. is considering a capital budgeting project that has an expected return of 25% and a standard deviation of 30%. What is the project’s coefficient of variation?

Leslie Industries is considering the following independent projects for the coming year: Project RequiredInvestment ExpectedRate of Return Risk X $3 million 12.0% High Y   2 million 10.0% Average Z   5 million 10.5% Low Leslie’s WACC is 11.5 percent, but it adjusts for risk by adding 2 percent to the WACC for high-risk projects and subtracting 2 percent for low-risk projects.  Which project(s) should Leslie accept assuming it faces no capital constraints?

Suppose you invest $4,500 today in an account that earns a nominal annual rate (inom) of 16 percent, with interest compounded semiannually.  How much money will you have after 8 years?

A firm with a 13 percent cost of capital is evaluating two projects for this year’s capital budget.  The projects’ expected after-tax cash flows are as follows: Year: 0 1 2 3 Project X: -$9,000 $4,300 $3,900 $3,000 Project Y: -$11,000 $5,100 $4,800 $5,000 If Projects X and Y are mutually exclusive, which one(s) should the firm adopt?

A firm with a 9.5 percent cost of capital is considering a project for this year’s capital budget.  The project’s expected after-tax cash flows are as follows: Year: 0 1 2 3 4 Cash flow: -$15,000 $6,200 $6,800 $5,400 $6,800 Calculate the project’s internal rate of return (IRR).

Loyd & Associates’ common stock currently trades at $55 a share.  It is expected to pay an annual dividend of $3.30 a share at the end of the year (D1 = $3.30), and the constant growth rate is 4.3 percent a year.  What is the company’s cost of common equity if all of its equity comes from retained earnings?

A firm with a 12.5 percent cost of capital is evaluating two projects for this year’s capital budget.  The projects’ expected after-tax cash flows are as follows: Year: 0 1 2 3 Project X: -$10,000 $4,900 $4,300 $5,500 Project Y: -$7,000 $2,900 $3,600 $3,700 If Projects X and Y are mutually exclusive, which one(s) should the firm adopt?

The Fontenot Company’s cost of common equity is 11 percent, its before-tax cost of debt is 7 percent, and its marginal tax rate is 25 percent.  Given Fontenot’s market value capital structure below, calculate its WACC. Long-term debt $  4,000,000 Common equity   6,000,000 Total capital $10,000,000

A firm with a 12 percent cost of capital is considering a project for this year’s capital budget.  The project’s expected after-tax cash flows are as follows: Year: 0 1 2 3 4 Cash flow: -$15,000 $6,900 $6,600 $5,600 $7,200 Calculate the project’s payback period.