Wilson holds a portfolio that invests equally in three stocks (
w
A
wA
=
w
B
wB
=
w
C
wC
= 1/3). Each stock is described in the following table:
Stock
Beta
Standard Deviation
Expected Return
A
0.5
23%
7.5%
B
1.0
38%
12.0%
C
2.0
45%
14.0%

An analyst has used market- and firm-specific information to generate expected return estimates for each stock. The analyst’s expected return estimates may or may not equal the stocks’ required returns. You’ve also determined that the risk-free rate is 4%, and the market risk premium is 5%.

Special order carson manufacturing, inc., sells a single product for $36 per unit. at an operating level of 8,000 units, variable costs are $18 per unit and fixed costs $10 per unit. carson has been offered a price of $20 per unit on a special order of 2,000 units by big mart discount stores, which would use its own brand name on the item. if carson accepts the order, material cost will be $3 less per unit than for regular production. however, special stamping equipment costing $4,000 would be needed to process the order; the equipment would then be discarded. assuming that volume remains within the relevant range, prepare an analysis of differential revenue and costs to determine whether carson should accept the special order. use a negative sign with answer to only indicate an income loss from special order; otherwise do not use negative signs with your answers.