You have run a regression of monthly returns on Amgen, a large biotechnology firm, against monthly returns

Question:

You have run a regression of monthly returns on Amgen, a large biotechnology firm, against monthly returns on the S&P 500 Index, and come up with the following output:
Rstock = 3.28% + 1.65 RMarket R2 = 0.20
The current one year Treasury bill rate is 4.8% and the current thirty year bond rate is 6.4%. The firm has 265 million shares outstanding, selling for $30 per share.
a. What is the on this stock over the next year?
b. Would your estimate change if the purpose was to get a to analyze a thirty-year project?
c. An analyst has estimated correctly that the stock did 51.10% better than expected annually during the period of the regression. Can you estimate the annualized risk-free rate that she used for her estimate?
d. The firm has a debt-to-equity ratio of 3% and faces a tax rate of 40%. It is planning to issue $2 billion in new debt and acquire a new business for that amount, with the same risk level as the firm’s existing business. What will the beta be after the acquisition?
Capital Budgeting
Capital budgeting is a practice or method of analyzing investment decisions in capital expenditure, which is incurred at a point of time but benefits are yielded in future usually after one year or more, and incurred to obtain or improve the... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal... Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...