Complete the five problems and prepare the spreadsheet template with your solutions. Consider each problem independently, without reference to the previous problem. Write a brief synopsis of what you

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Complete the five problems and prepare the spreadsheet template with your solutions. Consider each problem independently, without reference to the previous problem. Write a brief synopsis of what you learned about the company and provide your recommendations for the company. Complete the five problems and prepare the spreadsheet template with your solutions. Consider each problem independently, without reference to the previous problem. Show your work, and use the attached excel document for questions 1-5 and a seperate word document for the synopsis.

1.)

Based on the following information, calculate the expected return and standard deviation for two stocks:

State of the Economy          Probability         Rate of Return: Stock A            Rate of Return: Stock B

Recession                                .25                                 .05                                           -.19

Normal                                     .50                                 .06                                            .14

Boom                                       .25                                 .10                                            .34

Fill in the value in the spreadsheet.

2.)

Based on the following information, calculate the expected return and standard deviation:

State of the Economy                 Probability                    Rate of Return

Depression                                       .15                                 -.107

Recession                                        .20                                   .069

Normal                                             .40                                   .135

Boom                                               .25                                   .215

Fill in the values in the spreadsheet.

3.)

A stock has an expected return of 12.4 percent and a beta of 1.37. The market expected return is 10 percent. What must the risk-free rate be?

Fill in the values in the spreadsheet.

4.)

King Fisher Aviation has a target capital structure of 72 percent common stock and 28 percent debt. Their cost of equity is 12 percent and the cost of debt is 5 percent. The tax rate is 40 percent. What is King Fisher’s WACC?

Fill in the values in the spreadsheet.

5.)

ing Fisher Aviation issued a 25 year, 6.8 percent semiannual bond 8 years ago. The bond sells today for 110 percent of its face value. The tax rate is 40%.

  1. What is the pretax cost of debt?
  2. What is the after-tax cost of debt?
  3. Which is more relevant, the pretax or the after-tax cost of debt? Why?

Fill in the values in the spreadsheet.

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