FINA 3320 Review End of Chapter Math

Your investment club has only two stocks in its portfolio. $20,000 isinvested in a stock with a beta of 0.7, and $35,000 is invested in a stockwith a beta of 1.3. What is the portfolio's beta?

1.08

AA Corporation's stock has a beta of 0.8. The risk-free rate is 4%, and the expected return on the market is 12%. What is the required rate of return on AA's stock?

10.40%

Statement of Retained EarningsIn its most recent financial statements, Del-Castillo Inc. reported $70 million of net income and $900 million of retained earnings. The previous retained earnings were $855 million. How much in dividends did the firm pay to shareholders during the year?

Dividends paid = previous RE + NI - current RE = 855 + 70 - 900 = 25

Corporate Tax LiabilityThe Talley Corporation had a taxable operating income of $365,000 (i.e., earnings from operating revenues minus all operating costs). Talley also had (1) interest charges of $50,000, (2) dividends received of $15,000, and (3) dividends paid of $25,000. Its federal tax rate was 21% (ignore any possible state corporate taxes). Recall that 50% of dividends received are tax-exempt. What is the taxable income? What is the tax expense? What is the after-tax income?

Income after operating Costs = $365,000 Interest expense = - $50,000 Taxable Dividend Received = 50% * $15,000 = $7,500 Taxable Income = $365,000 - $50,000 + $7,500 = $322,500 Tax Expense = = 21% * $322,500 = $67,725 Now After tax income = $322,500 - $67,725 + $7,500 = $262,275