A B D G H EF 1 Question 2 (3 Marks) 2 Anna is a Vice President at the J Corporation. The company is considering 3 investing in a new factory and Anna must decide whether it is a feasible 4 project. In order to assess the viability of the project, Anna must first calculate 5 the rate of return that equity holders expect from the company stock. The 6 annual returns for J Corp. and for a market index are given below. Currently, 7 the risk-free rate of return is 1.4% and the market risk-premium is 3.0%. 8 Enter Answer Enter Answer 1 Enter your Final Answer Her 1 9 a) What is the beta of J Corp.'s stock? 10 (1 Mark Round your answer to two decimal places) b) Using the CAPM model, what is the expected rate of return on J Corp. 11 stock for the coming year? 12 (2 Marks)(Round your answer to one one-hundreth of a percent) J Corp. Market Return Return 13 Year (%) 14 -5.94 -7.80 15 2 8.32 10.02 16 3 10.12 12.27 17 5.32 6.27 18 5 -11,94 -15.30 19 12.86 15.70 20 7.66 9.20 21 8 10.75 13.06 22 8.94 10.80 23 10 9.12 11.02 24 11 -3.68 -4.98 25 12 -5.54 -7:30 26 Complete your rough work in the space below 27 4 DO VON 6 7 9 . Refer to Question 2. Now that Anna has determined an appropriate rate 3 of return for J Corp.'s stock, she must calculate the firm's Weighted Average 4 Cost of Capital (WACC). There are currently 56.0 Million J Corp. common shares outstanding. Each share is currently priced at 6 $17.88 As well, the firm has 2,000 bonds outstanding and each + bond has a face value of $10,000, a yield to maturity of 3.02% and a B quoted price of $10,302.70 . J Corp.'s tax rate is 30%. J Corp. has no preferred shares outstanding. 0 11 What is J Corp.'s WACC? Enter Answer 2 (Round your answer to one one-hundredth of a percent) 1 3 Enter your Final Answer Here B 1 1 8 Question 4 Marks) 2 Refer to Questions 2 and 3. The land for the factory will cost $1,080,000 3 The factory will cost $1,070,000 to build and construction will take two + years with construction costs payable in equal installments at the start of each is year. The factory will operate for 20 years. At the end of its 20 year lifespan, the land can be resold for $700,000 There is a 70% probability that the factory's net operating cash flows will be $254,556; however, there is a 30% chance that net cash flows will only be 10 $85,469 You may assume that net operating cash flows are received at the 11 end of each year. 12 u a) What are the Expected net operating cash flows per year? (1 Mark Round your answer to 2 decimal places) 15 b) What is the Internal Rate of Return for the project? (+ Mark (Round your answer to one one hundroth of a percent) c) What is the Net Present Value of the project? 18 (Mark Round your answer to 2 decimal places) 19 20 d) Should Anna recommend that the J Corporation build the factory? (2 Marks) Enter Answer 14 Enter Answer 16 Enter Answer 21 Yes No Check only one bo 22 22 24 Complete your rough work in the space below 25 26 Enter your Final Answer Hore