Given the following returns on Stock J and the "market" during the last three years, what is the beta coefficient of Stock J? (Hint: Think rise over run.) \[\begin{array} { c r r } \text { Year }& \text { Stock J }& \underline { \text { Market } } \\ 1 & -13.85 \% & -8.63 \% \\ 2 & 22.90 \% & 12.37 \% \\ 3 & 35.15 \% & 19.37 \% \end{array}\]

A) 1.58 B) 1.66 C) 1.75 D) 1.84 E) 1.93 A) 1.58 B) 1.66 C) 1.75 D) 1.84 E) 1.93

Exam 18: Financial and Operating Leverage: Analysis and Calculation

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Louisiana Enterprises, an all-equity firm, is considering a new capital investment. Analysis has indicated that the proposed investment has a beta of 0.5 and will generate an expected return of 7%. The firm currently has a required return of 10.75% and a beta of 1.25. The investment, if undertaken, will double the firm's total assets. If rRF is 7% and the market risk premium is 3%, should the firm undertake the investment?

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Question 61

Given the following returns on Stock J and the "market" during the last three years, what is the beta coefficient of Stock J? (Hint: Think rise over run.) Year Stock J 1 -13.85\% -8.63\% 2 22.90\% 12.37\% 3 35.15\% 19.37\%

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Question 62

For a 10-year deposit, what annual rate payable semiannually will produce the same effective rate as 4% compounded continuously?

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Question 63

Mulroney Corp. is considering two mutually exclusive projects. Both require an initial investment of $10,000, and their risks are average for the firm. Project X has an expected life of 2 years with after-tax cash inflows of $5,300 and $7,000 at the end of Years 1 and 2, respectively. Project Y has an expected life of 4 years with after-tax cash inflows of $3,500 at the end of each of the next 4 years. The firm's WACC is 8%. Use the replacement chain to determine the NPV of the most profitable project.

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Question 64

Maxvill Motors has annual sales of $15,000. Its variable costs equal 60% of its sales and its fixed costs equal $1,000. If the company's sales increase 10%, what will be the percentage increase in the company's earnings before interest and taxes (EBIT)?

(Multiple Choice)

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Question 65

Refer to Exhibit 7A.1. What is the nominal dollar value of the interest tax savings to the firm in the third year of the issue?

(Multiple Choice)

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Question 66

You place $1,000 in an account that pays 7% interest compounded continuously. You plan to hold the account exactly 3 years. Simultaneously, in another account you deposit money that earns 8% compounded semiannually. If the accounts are to have the same amount at the end of the 3 years, how much of an initial deposit do you need to make now in the account that pays 8% interest compounded semiannually?

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Question 67

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Given the following returns on Stock J and the "market" during the last three years, what is the beta coefficient of Stock J? (Hint: Think rise over run.) Year Stock J 1 -13.85\% -8.63\% 2 22.90\% 12.37\% 3 35.15\% 19.37\%

For a 10-year deposit, what annual rate payable semiannually will produce the same effective rate as 4% compounded continuously?

Maxvill Motors has annual sales of $15,000. Its variable costs equal 60% of its sales and its fixed costs equal $1,000. If the company's sales increase 10%, what will be the percentage increase in the company's earnings before interest and taxes (EBIT)?

Refer to Exhibit 7A.1. What is the nominal dollar value of the interest tax savings to the firm in the third year of the issue?

An Overview of Financial Management

Financial Markets and Institutions

Financial Statements, Cash Flow, and Taxes

Analysis of Financial Statements

The Value of Money

Interest Rates

Bonds and Their Valuation

Risk and Rates of Return

Stocks and Their Valuation

The Cost of Capital

The Basics of Capital Budgeting

Cash Flow Estimation and Risk Analysis

Capital Structure and Leverage

Distributions to Shareholders: Dividends and Share Repurchases

Working Capital Management

Financial Planning and Forecasting

Multinational Financial Management

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