Question: please solve e) and f) The following table lists possible rates of returns together with the respective probabilities on ABC Inc. stock and on the

please solve e) and f) The following table lists possible rates ofplease solve e) and f)

The following table lists possible rates of returns together with the respective probabilities on ABC Inc. stock and on the market (M). a. List the possible values for RABC and the probabilities that correspond to those values. Compute the expected value, variance, and standard deviation for RABC. b. List the possible values for RM and the probabilities that correspond to those values. Compute the expected value, variance, and standard deviation for R. c. Calculate the covariance, and coefficient of correlation of R.ABC and RM. d. Calculate the beta for RABC. e. Determine the risk free rate of return. f. ABC is considering a project that will require an investment of $5,000,000 and will provide before tax cash flows of $2,000,000 one year from today, thereafter declining at 10% per year in perpetuity. ABC has a target Debt Equity ratio of 1.5 . It can issue bonds at par value with a coupon rate of 8%. It can also increase the use of accounts payable to finance the project. ABC assigns accounts payable same cost as the overall rWAcc. It has a target accounts payable/(debt-accounts payable) ratio of 0.40 . ABC has a 30% tax rate. Determine the rWACC, and the project's NPV. The following table lists possible rates of returns together with the respective probabilities on ABC Inc. stock and on the market (M). a. List the possible values for RABC and the probabilities that correspond to those values. Compute the expected value, variance, and standard deviation for RABC. b. List the possible values for RM and the probabilities that correspond to those values. Compute the expected value, variance, and standard deviation for R. c. Calculate the covariance, and coefficient of correlation of R.ABC and RM. d. Calculate the beta for RABC. e. Determine the risk free rate of return. f. ABC is considering a project that will require an investment of $5,000,000 and will provide before tax cash flows of $2,000,000 one year from today, thereafter declining at 10% per year in perpetuity. ABC has a target Debt Equity ratio of 1.5 . It can issue bonds at par value with a coupon rate of 8%. It can also increase the use of accounts payable to finance the project. ABC assigns accounts payable same cost as the overall rWAcc. It has a target accounts payable/(debt-accounts payable) ratio of 0.40 . ABC has a 30% tax rate. Determine the rWACC, and the project's NPV

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!