Question: In a two-factor APT model, dell computer has a Factor beta of 1.15 on the first factor portfolio, which is highly correlated with the change

In a two-factor APT model, dell computer has a

Factor beta of 1.15 on the first factor portfolio, which is highly correlated with the change in GDP, and a factor beta of -.3 on the second factor portfolio, which is highly correlated with interest rate changes. If the risk-free rate is 5% per year, the first factor portfolio has a risk premium of 2% per year and the second has a risk premium of -.5% per year,

a) compute the cost of capital for the project that uses Dell as the appropriate comparison firm. Assume no taxes and no need for leverage adjustments.

b) what is the present value of an expected $1 million cash flow one year from now, assuming that Dell is the appropriate comparison? Assume no taxes and no need for leverage adjustments.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

11.15. In a two-factor APT model, Dell Computer has a factor beta of 1.15 on the first factor portfolio, which is highly correlated with the change in GDP, and a factor beta of .3 on the second...

In a two-factor APT model, Dell Computer has a factor beta of 1.15 on the first factor portfolio, which is highly correlated with the change in GDP, and a factor beta of .3 on the second factor...

11.15. In a two-factor APT model, Dell Computer has a factor beta of 1.15 on the first factor portfolio, which is highly correlated with the change in GDP, and a factor beta of .3 on the second...

In a two - factor APT model, easy Jet has a factor beta of 1 . 2 5 on the first factor portfolio, which is highly correlated with the change in GDP , and a factor beta of - 0 . 8 on the second factor...

11.15 certainty equiv a cash flow with a negative beta exceds e 11.9. Explain intuitively why the certaintye -flow-8-expected value Exercises 11.10-11.14 make use of the followino Geeral Motors (GM)...

11.15 11.14. Comput the value of Hughes if GM's cost of capital is used as a discount rate instead of the cost of capital computed from the comparison firms. b. What is the present value of an...

11.15 In a two-factor APT model, easyJet has a factor beta of 1.15 on the fi rst factor portfolio, which is highly correlated with the change in GDP, and a factor beta of 0.3 on the second factor...

Solve for a and b, fast answer In a two-factor APT model, easyJet has a factor beta of 1.15 on the first factor portfolio, which is highly correlated with the change in GDP, and a factor beta of -0.3...

Hi again, I was hoping you can help with this investment management assignment. I am attaching the word document. It is 4 problems about asset management. Thank you for your help! Fin 6310 1. Assume...

1. Texas Roadhouse (TXRH) is rapidly expanding into new markets and had sales of $1,263M in 2012. Suppose you expect sales to grow at a 15% rate in 2013, but this rate will slow by 2% per year to a...

Explain why X-rays can be used to measure atomic distances in crystals but visible light cannot be used for this purpose?

Illness may cause two different types of monetary loss. What are they?

e equation for the capital market line is: E ( Rz ) = Rfree + Z M ( RM Rfree ) E ( Rz ) = Rfree + Z M RM Rfree Which part of the CML equation represents the market risk premium? ( RM Rfree ) RM Rfree...

10) For a bond that pays cash interest (i.e., not a zero coupon bond), YTM is (a) always equal to the coupon rate (b) always equal to the current yield (c) is always less than the coupon rate (d) can...

5. List your five favorite TV shows. What do they have in common? Are these the same top five that your friends would list? Why or why not? What is it specifically that you like about these shows?...

6. Practice five skills for becoming a more mindful and media literate consumer

4. Think of a controversial issue about which you have very strong opinions. Write one paragraph describing the key problem and its main causes, taking care to present your information as objectively...