Finance Worksheet

1.

Date Price Dividend Stock Split Market Return Slope=beta 31-Jan-84 17.625 -0.01291 2.62328832 29-Feb-84 15 0.05 -0.03917 30-Mar-84 14.875 0.01345 30-Apr-84 17.125 0.00273 31-May-84 17.375 -0.05235 29-Jun-84 18 0.05 0.02359 31-Jul-84 14.75 -0.02035 31-Aug-84 18 0.05 0.11257 28-Sep-84 17 0.00039 31-Oct-84 17.875 0.00013 30-Nov-84 15.25 0.05 -0.01062 31-Dec-84 15.5 0.02379 31-Jan-85 23.375 0.08573 28-Feb-85 23.75 0.11 0.017 29-Mar-85 23.125 -0.00193 30-Apr-85 20.625 -0.00218 31-May-85 22.625 0.06 0.05587 28-Jun-85 24 0.01719 31-Jul-85 24.125 -0.00054 30-Aug-85 22.875 0.06 -0.0048 30-Sep-85 20.125 -0.03965 31-Oct-85 22.25 0.04457 29-Nov-85 25.5 0.06 0.06927 31-Dec-85 32.5 0.04306 31-Jan-86 36.375 0.00986 Cost of equity - capital asset pricing model 28-Feb-86 39.125 0.17 0.07284 31-Mar-86 39 0.05388 Re = rf + (rm – rf) * β 30-Apr-86 30.375 -0.00806 Where: 30-May-86 33.375 0.07 0.05081 Re = the required rate of return on equity 30-Jun-86 35.5 0.0143 rf = the risk free rate 31-Jul-86 29 -0.05969 rm – rf = the market risk premium 29-Aug-86 28.75 0.07 0.06639 30-Sep-86 23.875 -0.07914 31-Oct-86 32.125 0.04944 28-Nov-86 29.5 0.07 0.01517 31-Dec-86 26.75 -0.02654 30-Jan-87 36.125 0.12837 27-Feb-87 36.875 0.2 0.04763 31-Mar-87 36 0.02324 30-Apr-87 21.375 - 3 for 2 -0.01713 Using Cost of equity - capital asset pricing model Cost of Equity rf 0.05 rm 0.06 Beta 2.6232883 20.74% (0.05+0.06)*2.6232

0.05 (Given) 0.06 (Given)

2a Unlevered Beta

Where: BL is the firm's beta with leverage. Tc is the corporate tax rate. D/E is the company's debt/equity ratio.

0.36

BU BL

When D/E is 60%, levered beta is So, Unlevered beta Levered beta when D/E = 70% is

1.42 0.72 1.05

(given) 1.42/1+(60/40)*(1-0.36))

2b. 10.41% 59%*(13%)+41%*(11%)*(1-36%)

Where: WACC Weighted Average Cost Of Capital Re = cost of equity Rd = cost of debt E/V = percentage of financing that is equity D/V = percentage of financing that is debt Tc = corporate tax rate Source Re

13% 11% 59%...