# Fin430 m2a2 – the capital asset pricing model

Assignment 2: The Capital Asset Pricing Model

You are considering an investment in Concordia Utilities and have some questions regarding the income generating abilities of the company.

Concordia Utilities has 4 plants in four states and they all operate as separate entities. All four plants are financed by Concordia and have no holdings of their own, but operate as if they were separate companies. You have gathered some information about the company’s plants as follows:

Table-1:

 Plant Beta Coefficient % of Concordia’s Income South Town 0.85 55% North Town 0.90 20% East Town 1.25 15% West Town 1.60 10%

You have also gathered some information about the market and found that the risk-free rate of interest is 3% and that the company adds a market risk premium of 4% to all investments. The possible market returns and their probabilities are found in Table-2:

Table-2:

 Probability Return 0.15 8% 0.2 9% 0.5 10% 0.1 11% 0.05 12%

Questions:

2. What is Concordia’s required rate of return on any new investments?  Explain your answers.
3. What is the equation for the Security Market Line (SML)?  Show the equation and graph the equation on a graph.  Explain what the SML is telling you, and the implications for the firm.
4. Suppose Concordia has the opportunity to purchase an additional plant.  The cost of the new plant will be \$200 million and have a beta coefficient of 1.60.  If the new plant is expected to return 12%, should Concordia make the investment?  Explain your answers and justify your calculations.

Present your analysis of the assigned problems in Excel format. Enter non-numerical responses in the same worksheet using textboxes.

 Assignment 2 Grading Criteria Maximum Points Correctly calculated the beta coefficient for the company and explained its meaning and significance to the firm. 20 Correctly calculated the Concordia’s required rate of return on any new investments and explained the significance of this number to the investing activities of the firm. 20 Correctly determined the function for the SML and plotted this function, graphically. 16 Explained the significance of the SML in terms of the information it provides and the significance to the firm and in terms of future investments. 16 Correctly evaluated the new investment and made a recommendation as to whether the investment should go forward, explaining the rationale. 16 Used correct spelling, grammar, and punctuation and followed APA style guidelines. 12 Total: 100
Basic features
• Free title page and bibliography
• Unlimited revisions
• Plagiarism-free guarantee
• Money-back guarantee
On-demand options
• Writer’s samples
• Part-by-part delivery
• Overnight delivery
• Copies of used sources
Paper format
• 275 words per page
• 12 pt Arial/Times New Roman
• Double line spacing
• Any citation style (APA, MLA, Chicago/Turabian, Harvard)

# Our guarantees

We value our customers and so we ensure that what we do is 100% original..
With us you are guaranteed of quality work done by our qualified experts.Your information and everything that you do with us is kept completely confidential.

### Zero-plagiarism guarantee

The Product ordered is guaranteed to be original. Orders are checked by the most advanced anti-plagiarism software in the market to assure that the Product is 100% original. The Company has a zero tolerance policy for plagiarism.

### Free-revision policy

The Free Revision policy is a courtesy service that the Company provides to help ensure Customer’s total satisfaction with the completed Order. To receive free revision the Company requires that the Customer provide the request within fourteen (14) days from the first completion date and within a period of thirty (30) days for dissertations.

The Company is committed to protect the privacy of the Customer and it will never resell or share any of Customer’s personal information, including credit card data, with any third party. All the online transactions are processed through the secure and reliable online payment systems.

### Fair-cooperation guarantee

By placing an order with us, you agree to the service we provide. We will endear to do all that it takes to deliver a comprehensive paper as per your requirements. We also count on your cooperation to ensure that we deliver on this mandate.

## Calculate the price

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
\$26
The price is based on these factors: