Determine the stock beta for Transbot? Transbot Inc., an all-equity financed company, is a manufacturer whose core

Determine the stock beta for Transbot?

 

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Transbot Inc., an all-equity financed company, is a manufacturer whose core operation is the production of robotic machines and transports. The CFO of the company is contemplating investing in two independent projects. The first project, RoboTrain is the production of robotic trains used in upscale shopping and leisure complex for carrying patrons within the facility. The second project, RoboMaid is the production of robotic maids used to gradually replace human domestic helpers. The CFO of Transbot hires you to perform relevant financial analyses and determine the feasibility of these projects. Based on estimates provided by your assistant, the expected return and standard deviation for RoboTrain are computed to be 16% and 12%, respectively and for RoboMaid 18% and 15%, respectively for the upcoming year. The correlation between the two projects is estimated to be 0.35. The stock returns for Transbot and the market (S&P 500 index) for the past 5 years are presented to you by your assistant as follows: Year 2017 2018 2019 2020 2021 Transbot's stock returns 28% 12% 27% 11% 15% Market returns 12% 11% 17% 12% 9% Assume the Capital Asset Pricing Model (CAPM) is valid and the firm beta is expected to remain unchanged in the foreseeable future. Transbot Inc., an all-equity financed company, is a manufacturer whose core operation is the production of robotic machines and transports. The CFO of the company is contemplating investing in two independent projects. The first project, RoboTrain is the production of robotic trains used in upscale shopping and leisure complex for carrying patrons within the facility. The second project, RoboMaid is the production of robotic maids used to gradually replace human domestic helpers. The CFO of Transbot hires you to perform relevant financial analyses and determine the feasibility of these projects. Based on estimates provided by your assistant, the expected return and standard deviation for RoboTrain are computed to be 16% and 12%, respectively and for RoboMaid 18% and 15%, respectively for the upcoming year. The correlation between the two projects is estimated to be 0.35. The stock returns for Transbot and the market (S&P 500 index) for the past 5 years are presented to you by your assistant as follows: Year 2017 2018 2019 2020 2021 Transbot's stock returns 28% 12% 27% 11% 15% Market returns 12% 11% 17% 12% 9% Assume the Capital Asset Pricing Model (CAPM) is valid and the firm beta is expected to remain unchanged in the foreseeable future.

Answer rating: 100% (QA)

To determine the feasibility of the projects we need to calculate the expected returns and standard deviations of the portfolio containing both projec... View the full answer