excess returns means E(R) for netflix is higher than other firms with the same volatility. alpha is the residual (residual is every number above or below the regressionline, in this case the regres line is SML. excess return means positve alpha, which means can be different from 0. (+ in this case)
haha okey: start by finding delta: (Cu-Cd)/(Su-Sd) --> Su = S*standard dev here its (35*0,2 =7, 7+35=) 42 same for Sd, this is 28. to find Cu and Cd: difference between Su and strike --> 42-38 makes 4 and since we do not exercise the option if we make losses, Cd is 0 instead of - 10. now u found delta. we gonna find B. B=(cd-delta*sd)/1+rf. just fill in the numbers to find B= -7.84... last but not least C= (delta*S + B )this makes 2.15, cheers lads
Unlevered cost of capital is basically the pre tax WACC.
We have the post tax WACC.
In order to calculate the pre tax, we need the return on equity.
This can be solved from the post tax WACC as following:
SOLVE FOR Re
Plug Re into the pre tax wacc =
(5/20)*(6%) + (15/20)*Re
Should get the answer!
6 months ago
if u do this u get wrong answer... how i got it: 0,06*(1-0,4)*(5/20)= 0,009
difference is 0,006 so add that to ur 9%. dont know if this is correct way to do it but hey it works... cheers
ABSOLUTELY! Beta is measured as covariance divided by variance. Since covariance is the multiplied variances of the market and the stock and since the variances are squared volatilities there should alway be a relationship.
It is wrong. They are actually asking for the price to earning ratio. In fact, if you do 20/EPS with EPS as 1,91 you get 10,41 that is in the answers. Just a very stupid mistake when formulating the question that makes you loose a lot of time and should be very easy for them to identify. Very very very superficial way of preparing a university exam.
53) p. 905: " Municipal bonds (“munis”) are issued by state and local governments. Their distinguish- ing characteristic is that the income on municipal bonds is not taxable at the federal level. (..). Some issues are also exempt from state and local taxes"
He has to be kidding if he says that c) is a wrong statement only because some are exempt from local taxes..
The reponse is B because : page 861 of the book : "Angel investors often circumvent this problem by hold- ing a convertible note rather than equity. In a typical deal, in exchange for their invest- ment, angels receive a note that is convertible into equity when the company finances with equity for the first time." accrued interest is never mentioned :)
31) What is the reasoning behind statement d) ? I get that an interest income tax rate of 51% corresponds to an effective tax rate of 0, but why would a higher tax rate lead to the fact that less taxes have to be paid?
There were at least 10 questions in which you could argue either for more than one answer or for no correct answer. I am an exchange student, can someone tell me how to see the questions again and then complain about them? Or was I supposed to copy the whole freaking questions and take them with me? I marked them with stars, but I forgot the details of each question.
I think what A is saying, that all other firms in the industry who are not part of the acquisition, the acquisition will not lead to a decrease of their stock price.
So not if the acquisition isnt succesful, just the fact that other firms' stocks arent negatively affected
whoever made the question is just being sneaky.
Required return = E(Ri)
sensitivity to the market risk = Beta
Treasury bills returns = the risk free rate
Market portfolio returns = market return
So, Ri = 3 + 0.75*(7-3)
1. Under CAPM, return is only compensated through market risk and not idiosyncratic risk. Only beta and expected returns count, so you can cross out A,B and D because they have a higher beta than C but a lower expected return.
Why is it B?
On page 1031: "Besides increasing managers; risk exposure, increasing the sensitivity of managerial pay and wealth to firm performance has some other negative effects."
Don't tell me the only thing that makes it false is the use of "while" vs. "besides," Because that is just ridiculous.
The value of a levered firm is the value of the unlevered firm plus the present value of the interest tax shield. In the case of permanent debt is the corporate tax rate multiplied by the amount of debt. Calculation is: TUV value = (15/0.12)+(50*0,35) = 142.5 (B)