Question 1 The rationale of an Apache acquisition of MW Petroleum is plausible, yet there are outstanding concerns. By completing a deal, Apache stands to benefit from several aspects. First, MW isa large company which has more than double Apache’s reserves and it includesproperties that are well-suited to Apache’s operating capabilities. Moreover, on behalf of MW, Amoco operated fields accounting for approximately 80% of MW’s production. Such high operating percentage would promise Apache significant
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return behavior. Did the stocks with the highest risk earn the greatest return? d. Calculate the portfolio return and risk assuming equal investment in each stock. e. Calculate the portfolio risk and return of a risky (i.e. market) and a risky free asset. f. Calculate the beta of each stock and for the portfolio of three stocks assuming equal investment in each stock. Which stock is better buy? Note: Use SML. g. Calculate the total variance of first stock and partition the total risk into systematic
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Introduction In this case Boeing faces a number of challenges in determiningthe viability of bringing forth the 7E7 aircraft series. Aircraft manufacturersbringing forth a new product has to take extra care since a miss in this assessment can place a company in a position to fail the result of huge cash outflows required. Boeing faced stiff competition from French based Airbus and had not brought forth a successful new product in recent years. Since the September 11th attacks travel had taken
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Analysis Janet Mortensen, senior vice president of project finance for Midland Energy Resources, needs to estimate the cost of capital because it is an important data for estimating the project whether it will be profitable and worth the resources and risk. As mentioned in the case, Midland estimates the cost of capital to be used in analyzing asset appraisals for capital budgeting and financial accounting, performance assessments, M&A proposals, stock repurchase decisions. Some of these analyses
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are the solutions. 1. (5 points) Basics a. (2 points) Under the Capital Asset Pricing Model: A. Every investor holds the risk free asset only, and none of the market portfolio. B. Every investor holds the market portfolio only, and none of the risk free asset. C. Every investor holds a portfolio with a beta of one. D. None of the above. CIRCLE ONE: A B C D Solution: D. Investors can hold any combination of the riskfree asset and the market portfolio, depending on their particular risk aversion
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stadium benches, must evaluate the risk and return of two assets, X and Y. The firm is considering adding these assets to its diversified asset portfolio. To assess the return and risk of each asset, Junior gathered data on the annual cash flow and beginningand end-of year values of each asset over the immediately preceding 10 years, 2002– 2011. These data are summarized in the table below. Junior’s investigation suggests that both assets, on average, will tend to perform in the future just as they
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analyse the financial strength of Bayer AG and the other aspects associated with its capital structure and dividend policy. The organisation has been trying to change its financial structure to a management-driven one. This is evident from the reduction in the share capital of the organisation and the rise of debt capital, which it has been using efficiently to reduce its tax burden and control the overall cost of capital of the firm. The organisation has been paying dividends at a higher rate compared
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Average Cost of Capital: Summary “Cheat Sheet” by MBAbullshit.com Money (capital) needed to run a company comes from either borrowing (debt) or the owners’ money (equity). The COST of capital is either the interest payment on the debt, or the required profit that the owners want in return for their investment (in MBA bullshit language: “expected return”). The expected return or COST OF EQUITY is determined by another financial model, the CAPM or the CAPITAL ASSET PRICING MODEL. Go to MBAbullshit
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Copyright c 2005 by Karl Sigman 1 Capital Asset Pricing Model (CAPM) We now assume an idealized framework for an open market place, where all the risky assets refer to (say) all the tradeable stocks available to all. In addition we have a risk-free asset (for borrowing and/or lending in unlimited quantities) with interest rate rf . We assume that all information is available to all such as covariances, variances, mean rates of return of stocks and so on. We also assume that everyone is a risk-averse
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found for the same days. After running a regression analysis, the betas were found. The beta gives the volatility of each of the stock's returns and is can be compared to the entire portfolio. Beta is used in the capital asset pricing model to calculate the expected return of an asset based on its beta and expected market returns. By reviewing the portfolio based on Apple Inc., Microsoft Inc., Chesapeake Energy, Devon Energy and WalMart we find that there are some stocks that have a return and
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