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Klaatu Co. has recently completed a $300,000, two-year marketing study. Based on the results.
1.Klaatu Co. has recently completed a $300,000, two-year marketing study. Based on the results. Klaatu has estimated that 10,000 of its new RUR-class robots could be sold annually over the next eight years at a price of $10,115 each. Variable costs per robot are $7,900; fixed costs total $11.7 million per year. Starts up costs include $41 million to build production facilities, and 9 million in net working capital. The $41 million facility is made up of a building valued at 6 million that will belong to CCA class 3 (rate is 5%) and $35 million of manufacturing equipment (belonging to CCA class 8 with rate of 20%). At the end of the project`s life, the facilities will be sold for an estimated $10.1 million, assuming the building`s value will be $4 million and net working capital will be recovered .When this project is over, there will still be other assets in the CCA class. Klaatu pays taxes at a 37% and uses a 15.5 percent discount rate on projects such as this one. Should Klaatu produce the RUR-class robots?2.The Bostral Company has to choose between two machines that do the same job but have different lives. The two machines have the following costs:YearMachine AMachine B0$ 40,000$ 50,0008,0008,0008,0008,000 + replaceWhich machine should Borstal buy?basis of the capital asset pricing model :a. Draw a graph showing how the expected return varies with beta.b. What is the risk premium on the market?c. What is the required return on an investment with a beta of 1.5?d. If an investment with a beta of .8 offers an expected return of 9.8%, does it have a positive NPV?e. If the market expects a return of 11.2% from stock X, what is its beta?4. Stocks A and B have the following historical returns: YearStock A's ReturnsStock B's Returns1997-18.00%-14.50%199833.0021.80199915.0030.502000-0.50-7.60200127.0026.30a. Calculate the average rate of return for each stock during the period 1997 through 2001.Assume that someone held a portfolio consisting of 50 percent of Stock A and 50 percent of Stock B. What would have been the realized rate of return on the portfolio in each year from 1997 through 2001? What would have been the average return on the portfolio during this period?b. Calculate the STD DEV of returns for each stock and for the portfolio during this period.c. If you are a risk-averse investor, would you prefer to hold Stock A, Stock B, or the portfolio? Why?
