Need some help with the question attached as images, thank you! Question 10 81,

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

Question 10 81, 2014, Travis Tritt Inc. has Machine Less: Accumulated depreciation Book value $3,168,100 877,320 $2,290,780 Depreciation is computed at $146,220 per year on a straight-line basis. Presented below is a set of independent situations. For each independent situation, indicate the journal entry to be made to record the transaction. Make sure that depreciation entries are made to update the book value of the machine prior to its disposal. A fire completely destroys the machine on August 31, 2015. An insurance settlement of $1,047,910 was received for this casualty. Assume the settlement was received immediately (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Date Account Titles and Explanation Debit Credit August 31, 2015 (To record current depreciation.) August 31, 2015 (To record loss of the machine.)

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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