Blog

At the beginning of December, Coastal Corporation had $2,300 in supplies on hand. During the month, supplies purchased amounted to $3,200, but by the end of the month the supplies balance was only $1,300. What is the appropriate month-end adjustment?

Financial accounting information is primarily provided to:

What effect does the recording of an expense have on the accounting equation?

What is media literacy? [1 sentence]

Give a hypothetical example of idiosyncratic risk and explain why this risk is idiosyncratic.

Let’s revisit the expansion project of In-N-Out Burger.  As you may remember In-N-Out was considering expanding beyond its Southern California roots to the south and southeast U.S.   You prepared the forecast below for the estimated free cash flows.   At this point you would like to evaluate the NPV of this project by the firm’s weighted average cost of capital based on the information below: 1.  In-N-Out plans to finance this expansion with a mix of 30% debt and 70% equity. 2.  In-N-Out’s equity beta is 0.7 3.  The market risk premium is 5%, the overnight (risk-free) borrowing rate is 3% and the 5-year Treasury bond (risk-free) rate is 4% 4.  In-N-Out Burger’s current bonds are rated AA-.  The credit spread on AA- rated bonds is 2%. 4.  During year 4 and afterward, assume that free cash flows calculated in year 3 grow perpetually at 3% per year (i.e., year 4 cash-flow is 3% more than year 3 cash-flow, year 5 cash-flow is 3% higher than year 4 cash-flow and so on).  As you know by now, the present value of growing perpetuities = (cash flow expected in the next period) / (discount rate – growth rate) Tax rate 35%

Briefly explain the concept of a stock’s Beta (market beta) to somebody who does not know finance (say, your favorite elementary school teacher).

Why do diversified portfolios usually have higher Sharpe ratios than investments in single assets?  

Calculate the cost of equity for  In-N-Out.  Show your calculations in your answer.

Consider two stocks.  The market beta of Stock A is 2, the market beta of Stock B is 1.  The risk-free rate is 3.5%, the market premium is 6%. Calculate the following items:  (0.5p each) (a) the expected return on Stock A (b) the expected return on Stock B (c) the expected return on a portfolio that has 60% of the portfolio’s value invested in Stock A and 40% in Stock B (d) the beta of the above portfolio.