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Capital Planning Evaluation Techniques

An assignment on capital planning evaluation techniques, focusing on financial decision-making.

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Unit 3-Capital Planning Evaluation TechniquesReading Assignment:Bruner, Case # 13-16Assignment Type:Individual ProjectDeliverable Length:Word document of 1–2pages, plus an Excel spreadsheetPoints Possible:115Due Date:1/27/2013 11:59:59 PMCTYou have been asked by the director of finance to put together a plan to invest inother companies. Your plan will manage a mutual fund with a $20 million portfoliowith a beta of 1.50. Assume that the risk-free rate is 4.50%, and the market riskpremium is 5.50%. You expect to receive an additional $5 million, which you plan toinvest in a number of stocks. After investing the additional funds, you want thefund’s required return to be 13%.•What must the average beta of the new stocks added to the portfolio be toachieve the desired required rate of return? Attach your Excel file showingyour calculations.•In a Word document, explain the steps you used to arrive at your answers.•What does your calculated beta mean to UPC?•Should UPC be concerned about the use of betas in making investmentdecisions?Please submit your assignmentAnswer:What must the average beta of the new stocks added to the portfolio be to achievethe desired required rate of return? Attach your Excel file showing yourcalculations.Old funds(millions)$20.00New funds(millions)$5.00$25Beta on existing portfolio1.5Risk free rate4.50%Market risk premium5.50%Desired required return13.00%Required new portfoliobeta1.5455%

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