Need some help with the question attached as images, thank you! On January 1, 20

Question

Need some help with the question attached as images, thank you!

On January 1, 2014, Blair Corporation purchased for $827,500 a tract of land (site number 101) with a building. Blair paid a real estate broker's commission of $59,580, legal fees of $9,930, and title guarantee insurance of $29,790. The closing statement indicated that the land value was $827,500 and the building value was $165,500. Shortly after acquisition, the building was razed at a cost of $89,370. Blair entered into a $4,965,000 fixed-price contract with Slatkin Builders, Inc. on March 1, 2014, for the construction of an office building on land site number 101. The building was completed and occupied on September 30, 2015. Additional construction costs were incurred as follows. Plans, specifications, and blueprints Architects' fees for design and supervision $34,755 135,710 Ar The building is estimated to have a 40-year life from date of completion and will be depreciated using the 150% declining-balance method. To finance construction costs, Blair borrowed $4,965,000 on March 1, 2014. The loan is payable in 10 annual installments of $496,500 starting on March 1, 2015, plus interest at the rate of 10%. Blair's weighted-average amounts of accumulated building construction expenditures were as follows. For the period March 1 to December 31, 2014 For the period January 1 to September 30, 2015 $2,151,500 3,144,500 Prepare a schedule that discloses the individual costs making up the balance in the land account in respect of land site number 101 as of September 30, 2015. BL Cost of Land (Site #101) As of September 30, 2015 AIR CORPORATION

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Market Risk Premium = Expected Return on Market Portfolio - Risk Free Rate = 13% - 6% = 7%

Expected Return as per CAPM = Risk Free Rate + Beta*Market Risk Premium = 6 + 1.50*7 = 16.50%

At 12% (expected return on Stock), there is a negative alpha of -4.50 (12 - 16.50).

Option C (SDA Corp. stock's alpha is 4.50%) is correct.

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