1. Historically, winner stocks and loser stocks both tend to be growth stocks; they both tend to be medium size stocks. These mean their value beta and size beta are also very similar. Therefore, the winner-minus-loser stock return (2)
A. Cannot be fully explained by the Fama-French 3 factor model
B. Generate zero alpha in the Fama-French 3 factor model
C. Generate negative alpha in the Fama-French 3 factor model
2. A new computer system will require an initial outlay of $24,000, but it will increase the firm’s cash flows by $4,800 a year for each of the next 6 years. a. Calculate the NPV and decide if the system is worth installing if the required rate of return is 8%. What if it is 13%? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)
Rate of Return NPV Worth Installing
8% $
13% $
b. How high can the discount rate be before you would reject the project? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Maximum discount rate %