Consider the following information:

State Probability ABC, Inc. (%)

Boom .25 15

Normal .50 8

Slowdown .15 4

Recession .10 -3

• What is the expected return?
• What is the variance?
• What is the standard deviation?

2. Consider the following information (Slide # 15)

State Probability X Z

Boom .25 15% 10%

Normal .60 10% 9%

Recession .15 5% 10%

• What are the expected return and standard deviation for a portfolio with an investment of $6,000 in asset X and $4,000 in asset Z?

3. The risk free rate is 4%, and the required return on the market is 12%. What is the required return on an asset with a beta of 1.5?

What is the reward/risk ratio?

What is the required return on a portfolio consisting of 40% of the asset above and the rest in an asset with an average amount of systematic risk?

Chapter 11

1. Cantor's has been busy analyzing a new product. Thus far, management has determined that an OCF of $218,200 will result in a zero net present value for the project, which is the minimum requirement for project acceptance. The fixed costs are $329,000 and the contribution margin per unit is $216.40. The company feels that it can realistically capture 2.5 percent of the 110,000 unit market for this product. The tax rate is 34 percent and the required rate of return is 11 percent. Should the company develop the new product? Why or why not?

2. Tucker's Trucking is considering a project with a discounted payback period just equal to the project's life. The projections include a sales price of $38, variable cost per unit of $18.50, and fixed costs of $32,000. The operating cash flow is $19,700. What is the break-even quantity?