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  1. The market risk premium is 7.2. The firm's required return is 11.2%. The risk-free rate is 5%. What is the firm's beta?
  2. Your portfolio has a beta of 1.4. The portfolio consists of $30,000 of GM and $20,000 of Ford stock. GM's beta is 1.1. What is the beta of Ford?
  3. The balance sheet for Stratton Co. shows $400,000 in common equity, $100,000 in preferred stock, and $500,000 in long-term debt. The company has 20,000 common shares outstanding at a market price of $65 per share. The firm's 4,000 shares of preferred stock are currently priced at $50 per share. The firm has 500 bonds outstanding selling at par value ($1,000). The company's before-tax cost of debt is 6%. The cost of common stock and preferred stock are estimated to be 10% and 7% respectively. If the firm's marginal tax rate is 40%, what is the firm's weighted average cost of capital (WACC)?
  4. You are evaluating the proposed acquisition of a machine that costs $220,000. The machine will result in increased sales of $120,000 per year for 3 years, but costs will increase by $25,000 per year. The machine will be depreciated 3 years MACRS and will be sold for an estimated $50,000 after 3 years. NWC will increase by $75,000 and remain constant for the life of the project. The firm's tax rate is 40 percent and discount rate is 9 percent. Calculate the project's cash flows. MACRS for 3 years: Year 1 Year 2 Year 3 33.33% 44.45% 14.81% 

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