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Nodebt, Inc., is a firm with all-equity financing. Its equity beta is .80. The Treasury bill rate is 5 percent and the market risk premium is expected to be 10 perc...

Question

Nodebt, Inc., is a firm with all-equity financing. Its equity beta is .80. The Treasury bill rate is 5 percent and the market risk premium is expected to be 10 percent. What is Nodebt's asset beta? What is Nodebt's weighted-average cost of capital? The firm is exempt from paying taxes.

Nodebt, Inc., is a firm with all-equity financing. Its equity beta is .80. The Treasury bill rate is 5 percent and the market risk premium is expected to be 10 percent. What is Nodebt's asset beta? What is Nodebt's weighted-average cost of capital? The firm is exempt from paying taxes.



Answers

A company has an investment project that would cost $\$$10 million today and yield a payoff of $15 million in 4 years.

a. Should the firm undertake the project if the interest rate is 11 percent? 10 percent? 9 percent?
8 percent?

b. Can you figure out the exact cutoff for the interest rate between profitability and nonprofitability?

So while saying the question learns for them, moved to dance. And so let's see here that profitable loss is equal to $15 Divided by one plus. Want 11 to the power for which is equal to $9.88 minus $10 which is equal to minus $1,190 million. And the second one is profit or loss is equal to $15 divided by one plus .10 to the power for which is equal to 10 point $2,452 $10 which is equal to wine, $2,452 million. and the 3rd 1 is profitable. Laws is equal to $15 divided by one plus point 09 to the powerful, which is equal to 10 point $6,264 $10, which is equal to point $6,264 million. and the 4th 1 is profitable loss Which is equal to $15 Divided by one plus point 0 to the power for which is equal to 11 point 02 $5.4 $-10 which is equal to 1.0 $254 million. So increasing discount rate above 10% will make the investment unprofitable hands. The company must financial project at a lower rate at a rate lower than 10% in order to make a positive profit. So here is the full solution and definition that profitable losses equal to $15 divided by one plus 10.11 to the power four which is equal to $9.88 minus $10 which is equal to minus $1190 million. And the second one is profitable loss which is equal to $15 Divided by one plus .10. to the power for which is equal to $10.2452 $-10 which is equal $2.2,452 million. And the third one is profitable, losses equal to $15 divided by one plus 10.9 to the power for which is equal to $10.6264 minus $10 which is equal to $100.6264 million. And the fourth one is profitable losses equal to $15 divided by one plus 10.8 to the power four Which is equal to $11.0254 -10, which is equal to $1.025 million. So increasing discount rate above 10% will make the investment unprofitable. Hence the company must finance a project at a rate lower than 10% in order to make a positive profit. So I hope you better understand the full solution And and definition so for any further curation doubts I'm there for help. So thank you

So while seeing the question, let's for the move to the answer. So let's see here that profitable laws is equal to $15 divided by one plus .11 to the power for Which is equal to nine $88 $-10 Which is equal to -1190 million dollars. And the second one is profit or loss is equal to $15 Divided by one plus .10 With the powerful, which is equal to 10 $2,452 -10, which is equal to point 2452 million dollars. And the 3rd 1 is profit or loss is equal to $15 divided by one plus 109 to the power for which is equal to 10 point $6,264 $-10 which is equal to why $6,264 million. and the 4th 1 is profit or loss is equal to $15 divided by one plus .08. With a power four, Which is equal to 11 02 $5.4 $10, which is equal to 1.02 $5, million. So increasing discount rack above 10% will make that investment unprofitable. Hence the company must financial project act a rate lower than 10% in order to make a positive profit. So here is the solution and definition of the question. So here his first profit or loss is equal to $15 Divided by one plus .11 to the power for which is equal to $9.88 -10, which is equal to minus $1190 million. And the second one is profit or lost, which is equal to $15 divided divided by one plus 0.10 to the powerful, which is equal to 10 point $2,452 -10, which is equal to point $2452 million. And the third one is profit or loss which is equal to $15 divided by one plus 10.9 to the power for which is equal to $10.6,264 -10 which is equal to $0.6264 million. And the fourth one is profit and loss which is equal to $15 divided by one plus 0.8 to the power four which is equal to $11.254 minus $10, which is equal to 1.025, million. So increasing discount rate about 10% will make the investment unprofitable. Hence the company must Finance a project at a rate lower than 10% in order to make a positive profit. So I hope you better understand the full solution in the definition. So for any further curious and doubts I am there for help. So thank you.

Okay, So pretty standard stuff here. They first part. I say they find the meaning median, which, of course, you just type in average and media and select yourselves, which I've put into Google sheets here. Of course, this was working Excel as well for variance. You type in D a r for Senator Deviation, type and S T dev and all the things pop up. And so in the next three nights, I'll show you all those values clearly right there are those for the next thing's Oh, they just ask us who Which company of the highest yield, which literally means which number is the house. So Altria Group has the highest dividend yield right there. Beyond that, they want to know about ze scores and out liars, and those two things go hand in hand. So I just went ahead and found that the scores of everything you do that by taking the value subtracting the meeting 2.3, divided by the standard deviation, which I rounded 1.378 And so this Ellen has EVA of 1.95 As I click enter I there's a little box that comes up at the bottom right corner of the cell. If you drag it down, it will give you every single Z value, which is what we have here. Um, they want us to look at two in particular, which was McDonald's negative 0.5 zero. That's that basically means that it's pretty close to the mean, but a negative value means it's slightly below. Where is General Motors is a 1.1. That means it is further away from the mean but definitely not outlier, because this would have to be greater than three or less than negative three for it to be an outlier. So it's it's further away from the mean and above the mean but definitely not outlier. In fact, for that last question or any of them outliers, absolutely not. None of these are have a Z value above three double O negative three. The closest one is Altria Group, with a Z by one point basically to 1.959 but again is not a big enough. The value to be considered an outlier

All right. This question deals with the distribution of stock prices with a mean of $30 a standard deviation of $8.20. So part eh wants the probability that a stock is more than $40 so that is equal to normal. CDF are lower bound, in this case is 40 and we want the area between 40 and infinity. So a large number and our mean is $30 our standard deviation is a point to, and that works out to be 0.1113 Part B asks for the probability that a stock costs less than $20 which is again normal CDF of a very small number. Very large negative number, I should say negative tend of the tent and our upper bound is 20 and we have the same mean and standard deviation as last time, and that turns out to also be 0.1113 And if that's a coincidence, don't be too shocked because 40 is one standard deviation above the mean, while 20 is one standard deviation below. So do the symmetry of the bell curve. They should be equal part, See, asks for to be in the top 10% which means that the area to the left equals 0.9 because if you're in the top 10% that means 90% must be below you. So we can use in verse and warm here with our area to the left and are mean and standard deviation. And that tells us that the top percent of stocks have a value greater than or equal Thio 40 point 51 dollars.


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