ENT152 Take-home Quiz

Directions: Show your solutions and box/highlight your final answer.

1. Jollibee Food Corp. is currently selling for P234.00. Shown below are an analyst's forecast:

State of the
Probability Dividend (D1) Price (P1)
Economy
12% Boom P50 P300
25% Good P45 P255
50% Likely P30 P240
13% Poor P25 P210

Calculate the mean and standard deviation of the expected return.

2. You can considering the purchase of an condominium unit somewhere in Taguig City. The unit is a
one-bedroom unit with 1.5 baths and 800 square feet and has an assessed value of P3.5 million. Use the
data below to estimate the market value of your potential condo unit.

Comparable
Square Feet Bedrooms Baths Assessed Value Selling Price
Transaction
Unit A 900 2 1 ₱ 4,000,000.00 ₱ 3,800,000.00
Unit B 675 1 2 ₱ 3,000,000.00 ₱ 2,900,000.00
Unit C 1,100 2 2 ₱ 4,500,000.00 ₱ 4,350,000.00
Unit D 845 1 1 ₱ 3,700,000.00 ₱ 3,500,000.00

3. Given the following data: risk-free rate = 5%, beta = 2, market required rate of return = 10%, what is
the CAPM required rate of return?

4. Thomas Brothers is expected to pay a $0.50 per share dividend at the end of the year (D1 = $0.50.
The dividend is expected to grow at a constant rate of 7% a year. The required rate of return of the stock,
rs, is 15%. What is the stock's current value per share?

5. An entrepreneur with total wealth of P3,000,000 is considering a P1,000,000 investment in a venture

with the following likely payoffs:

Scenario Probability Year 1 Payoff Return

Success 30% P2,000,000 100%
Likely 50% P1,250,000 25%
Failure 20% P500,000 -50%

Other assumptions:
risk-free rate = 5%
expected market return = 10%
standard deviation of market return = 15%
correlation between the venture's return and the market = 0.5

Find the expected return, standard deviation of expected return, estimate of the venture's beta,
and the CAPM return that a well-diversified investor would require to invest in the venture.

6. Compute the standard deviation of the entrepreneur's portfolio above if it consists of only two assets,
the project and the market. Hint: Xp = 1/3 (since he plans to invest 1M out of his 3M total wealth)

7. A 25 year-old college graduate has a job offer (starting salary of P500,000 annually, which is expected
to grow 6% annually for 35 years) and has no other financial wealth. The student is considering
committing 5 years to a new venture that would pay P250,000 per year. Find the PV of his human capital
(if he takes the job). Assume that employment is about as risky as investing in the market and therefor
use a 10% discount rate for r .

8. Continuing from #7 above, if he pursues the venture and it fails, he can start his corporate career in
the 6th year a P500,000 salary which will grow 6% annually for the next 30 years. Find the PV of his
human capital if he pursues the venture and it fails.

How much is the entrepreneur's human capital commitment to the new venture?