Portfolio Theory and Asset Pricing Models, Business & Finance Homework Help

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1. Define the following terms, using graphs or equations to illustrate your answers whereverfeasible:

a) Portfolio; feasible set; efficient portfolio; efficient frontier

b) Indifference curve; optimal portfolio 

c) Capital Asset Pricing Model (CAPM); Capital Market Line (CML) 

d) Characteristic line; beta coefficient,

e) Arbitrage Pricing Theory (APT) (Brigham, & Ehrhardt, 2014)


2. An analyst has modeled the stock of Crisp Trucking using a two-factor APT model. The risk-free rate is 6%, the expected return on the first factor (r1) is 12%, and the expected return on the second factor (r2) is 8%. If bi1 = 0.7 and bi2 = 0.9, what is Crisp’s required return?

3. Excel Speadsheet: 

a. Using the financial statements shown below for Lan & Chen Technologies, calculate
net operating working capital, total net operating capital, net operating profit
after taxes, free cash flow, and return on invested capital for 2010. (Hint: Start
with the partial model in the file and report all dollar figures in thousands to reduce
clutter.)
b. Assume there were 15 million shares outstanding at the end of 2010, the year-end
closing stock price was $65 per share, and the after-tax cost of capital was 8%.
Calculate EVA and MVA for 2010.
Lan & Chen Technologies: Income Statements for Year Ending December 31
(Thousands of Dollars)
2010 2009
Sales $945,000 $900,000
Expenses excluding depreciation and amortization 812,700 774,000
EBITDA $132,300 $126,000
Depreciation and amortization 33,100 31,500
EBIT $ 99,200 $ 94,500
Interest expense 10,470 8,600
EBT $ 88,730 $ 85,900
Taxes (40%) 35,492 34,360
Net income $ 53,238 $ 51,540
Common dividends $ 43,300 $ 41,230
Addition to retained earnings $ 9,938 $ 10,310
2010 2009
Assets
Cash and cash equivalents $ 47,250 $ 45,000
Short-term investments 3,800 3,600
Accounts receivable 283,500 270,000
Inventories 141,750 135,000
Total current assets $476,300 $453,600
Net fixed assets 330,750 315,000
Total assets $807,050 $768,600
Liabilities and equity
Accounts payable $ 94,500 $ 90,000
Accruals 47,250 45,000
Notes payable 26,262 9,000
Total current liabilities $168,012 $144,000
Long-term debt 94,500 90,000
Total liabilities $262,512 $234,000
Common stock 444,600 444,600
Retained earnings 99,938 90,000
Total common equity $544,538 $534,600
Total liabilities and equity $807,050 $768,600

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