You Have Been Asked to Evaluate the Performance of a Firm

question 118

Essay

You have been asked to evaluate the performance of a firm over the last year and to make some predictions for performance over the next year.The following data are provided to you:
$\begin{array}{lll}&\underline{\text {one year ago, }}&\underline{\text {today}}\\\text { 6-month T-bill rate } & 5 \% & 6 \% \\\text { firm's estimated beta } & 1.25 & 1.5 \\\text { NYSE index level } & 130 & 137 . \\\text { firm's stock price } & 50 & 52.5 \\\text { firm's exp. dividend yields } & 4 \% & 4 \% \\\text { market's exp. divided yield } & 3 \% & 3 \%\end{array}$


a. Evaluate the firm's performance over the last year. (Estimate the excess returns, either positive or negative, made by this firm.)
b. What would you expect the stock price to be one year from today?
c. You estimate that the standard deviation of this stock next year will be 50% and the standard deviation of the market will be 20%. What proportion of the firm's total risk is non-diversifiable?

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Definitions:

Technical Support

Assistance provided to customers or users with technology products or services, often regarding software, hardware, or other electronic or mechanical goods.

Debugging Software Errors

The process of identifying, analyzing, and correcting bugs in software.

External Failure Cost

Costs incurred when products or services fail to meet quality standards after being delivered to the customer, including returns, repairs, and warranty claims.

Quality Cost Report

A document that details the costs associated with ensuring product quality, including prevention, appraisal, and failure costs.