Question 1. A broker has advised you non to invest in crude industry stocks because, in her opinion, they are far as well as stakey. She has shown you curtilage of how wildly the prices of oil stocks have fluctuated in the modern past. She present that the standard deviation of oil stocks is very utmost relation back to most stocks. Do you think this brokers advice is buy the farm for a risk averse investor like you? Why or why not? Explain briefly. Question 2 The downtown Company has an candour beta, of 1.6 and 50% debt in its slap-up structure. The political party has risk-free debt that costs 6% to begin with measurees, and the expected say of return on the market (including the appreciate of imputation tax credits) is 18%. business district is considering the acquisition of a in the raw suggest in the peanut-raising agribusiness that is expected to yield 15% on after-tax net operating cashflows.
The Carternut Company, which is in the same ware soak up (and risk class) as the project being considered, has an equity beta, , of 2.2 and has 80% debt, that costs 10% before taxes, in its capital structure. If Downtown finances 50% of the new project with debt, should it be trustworthy or rejected? Assume that the effective tax esteem for both companies is 25%. If you want to get a to the full essay, order it on our website:
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