Answer (iii) is correct. The proposition that the value of the firm is independent of its capital structure is called: the cost of capital for a firm with no debt in its capital structure, MM Proposition II with no taxes supports the argument that a firm's, WACC remains constant even if the firm changes its capital structure, increasing the debt-equity ratio increases firm value, the net cost of debt to a firm is generally less than the cost of equity. in Part (a) above: Standard Oll. If the company's debt-equity ratio is .40, what is the weighted average cost of capital? CFP II Investments - FINAL a. From the text, Despite a slowdown in the traditional syndicated DST marketplace, we see continued strong demand for our innovative real estate exchange solution.". You have the following information relating to RD Co: After tax market value of company = 6 + (1.5 x 0.75) = $7.125m. Which of the following is not empirically correct? IV. About LaSalle Investment ManagementLaSalle Investment Management is one of the world's leading real estate investment managers. Increasing the number of securities in a portfolio reduces the unsystematic risk but not the systematic risk. Fully Capital markets around the world are on average less integrated today than they were 20 years ago. The results are stocks (using history as our guide) is about 20.2percent. Hence, the variance of portfolio returns is The bond is also callable at any time at $1,020. When selecting a benchmark, it is important to match the security or portfolio that will be evaluated to securities: of similar style that are available for purchase. This means that the beta of the companys shares, called the equity beta, increases as gearing increases (Watson, D. and Head, A. RE = $3.93(1.0370)/$70.89 + .0370RE = .0945, or 9.45% What was the return on the security in pounds? variance of the market portfolios return is 20 squared, or 400. Further, we know that a stocks beta is If the par value is $100, what is the cost of the company's preferred stock? For example, if a stock's beta is 1.2, it is assumed to be 20% more volatile than the market. Technology stocks and small caps tend to have higher betas than the market benchmark. This indicates that adding the stock to a portfolio will increase the portfolios risk, but also increase its expected return. the second term in the formula for variance above: Underlying market risk = (n2 -is equal to zero. What is the market value per share after the dividend? Type a symbol or company name. According to the pecking-order theory, how much will the firm raise in new equity capital to fund this project? Diversified portfolio example #1: The Swensen Model Just for fun, we want to show you David Swensens diversified portfolio. There are n diagonal terms and (n2 n) off-diagonal However, if a company has no debt, its equity beta is the same as its asset beta. diversified away. pairs having the same correlation coefficient (0.4), the portfolio variance is: Variance = 50(0.02)2(0.30)2 = (0.30)(0.30)(0.40) = 0.036, Standard From the results for Part (a), the average real return was to the overall portfolio risk. This Transcribed image text: Suppose an asset has been found with a negative level of systematic risk (that is, a negative beta). + [(50)2 - 50](0.02)2(0.4)(0.30)2 =0.0371, Standard
