Please answer the following questions:

1. Calculate expected alpha assuming the following and that the CAPM is used to determine required return:

• Equity risk premium = 6%
• Risk-free rate = 3.25%
• Beta = 1.15
• Current stock price = $49.83
• Expected selling price = $54.95
• Expected dividend = $1.50

2. The difference between the geometric average for the equity risk premium and the corresponding arithmetic average will be greater if excess returns are _____ (stable/volatile) and many of the excess returns are _____ (positive/negative).

3. The Dillon Company is planning a $1 million share repurchase. Its current stock price is $80 per share and there are 800,000 shares outstanding prior to the repurchase. Earnings per share without the repurchase would be $4 per share. Assume the company funds the repurchase by borrowing at a before-tax rate of 6%. The tax rate is 35%. Assuming the P/E ratio doesn't change, what would be the share price following the repurchase?