Question: Question -1 XYZ Corporation is comparing two different capital structures: an all-equity plan (Plan 1) and a levered plan (Plan 2). Under Plan 1, the

Question -1

XYZ Corporation is comparing two different capital structures: an all-equity plan (Plan 1) and a levered plan (Plan 2). Under Plan 1, the company would have $3.0 million of stock outstanding (equity). Under Plan 2, there would be 800,000 shares of stock outstanding and $2.2 million in debt outstanding. The interest rate on the debt is 8 percent, and the tax rate is 40%. Calculate the point of indifference/breakeven EBIT.

Question=2

We are considering a stock for investment. The beta of the stock is 1.30 & the average return on the market index is 14%. The t-bond rate is 3%.

a) Calculate the expected return from the stock using the CAPM. (3 points)

b ) If your expected return from the investment is 15%, should you invest in this stock? Explain your decision briefly.

Question-3

We are considering 2 stocks for our portfolio. Stock A has an expected return of 15% and a weight of 40% in our portfolio. Stock B has an expected return of 12% and has a weight of 60% in our portfolio.

a.Calculate the Expected return from the portfolio.

b.Calculate the variance of the portfolio. (2 points)

c.Calculate the standard deviation of the portfolio.

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