Let’s revisit the expansion project of In-N-Out Burger.  As…

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%

Consider two stocks.  The market beta of Stock A is 2, the m…

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.     

As you go through this quiz, be sure to read the directions…

As you go through this quiz, be sure to read the directions for each question carefully.The point below has three statements that provide relevant, on-target support (and three that don’t!). Identify the three relevant statements of support.Point: I’m a perfect example of someone who has “math anxiety.”