Question Managerial Finance Q (a) You are analyzing stock of Opex limited. The stock has a beta of 1.3. The risk-free rate is 5% and you estimate the market risk premium to be 8%. If you expect the stock to have a return of 13.5% over the next year, should you buy it? Why or why not? (b) You are the finance manager of Square Limited. You are considering investing in a new project to produce a part for a new printer. The project would last for five years and your cash flows from the contract would be $4.5 million per year. Your upfront setup costs to be ready to produce the part would be $8 million. Your cost of capital for this project is 9%. a. What does the NPV rule say you should do? b. If you take the contract, what will be the change in the value of your firm? Question 4: You are analysing a firm. The firm has a book value of $20.00 per share. You expect a dividend payout of 100 percent to have a return on common equity of 12 percent per year indefinitely in the future. Its cost of equity capital is 10 percent. [10+10] a. Calculate the intrinsic price-to-book ratio. b. Suppose this firm announced that it was reducing its payout to 50 percent of earnings in the future. How would this affect your calculation of the price-tobook ratio