The index model has been estimated for stocks A and B with the following results: R(A) = 0.01 + 1.4Rm R(B) = 0.03 + 1.1Rm Additionally, the standard deviation of the market index is 21%. What is the covariance between stocks A and B?
a. You now have $9101. At what annual interest rate would you have to invest this money so you can double it in 8 years? Assume annual compounding.
b. A firm is considering the purchase of a machine which would represent an investment of $29 million, and would be depreciated in a straightline basis over 5 years. Sales are expected to be $12 million per year, and operating costs 32% of sales. The company is currently paying $3 million in interest per year, has a tax rate of 40%, and a WACC of 10%. What is the company’s free cash flow for year 1 of this project?