1. Suppose you are the portfolio manager for a bank trust department. You meet with Ms. X to review her investment objectives. Ms. X currently holds a diversified portfolio of risky assets (i.e the market portfolio). She says she would like to increase the expected return of her portfolio. Which of the following do you advise her?
A. You tell her that is not possible.
B. You suggest to re-design a portfolio with a lower beta.
C. You tell her to get out of the risky assets completely and just hold cash.
D. You explain that she can level up by borrowing and investing more in risky assets.
2. IDX Technologies is a privately held developer of advanced security systems based in Chicago. As part of your business development strategy, in late 2013 you initiate discussions with IDX's founder about the possibility of acquiring the business at the end of 2013. Estimate the value of IDX per share using a discounted FCF approach and the following data:
• Debt: $ 35 million
• Excess cash: $ 111 million
• Shares outstanding: 50 million
• Expected FCF in 2014: $ 48 million
• Expected FCF in 2015: $ 55 million
• Future FCF growth rate beyond 2015: 6 %
• Weighted-average cost of capital: 9.4 %
a) The terminal enterprise value in 2014 is _____million. (Round to the nearest integer.)
b) The enterprise value in 2013 is _____million. (Round to the nearest integer.)
c) The equity value is ______ million. (Round to the nearest integer.)
d) The value of IDX per share is ______ (Round to the nearest cent.)