based upon the intercept how well or badly did mad do relative to expectations durin 546256

You have just run a regression of monthly returns on MAD Inc., a newspaper and magazine publisher, against returns on the S&P 500 and arrived at the following result.

RMAD = – 0.05% + 1.20 RS&P

The regression has an R-squared of 22%. The current T.Bill rate is 5.5% and the current T.Bond rate is 6.5%. The riskfree rate during the period of the regression was 6%.

Answer the following questions relating to the regression.

a. Based upon the intercept, how well or badly did MAD do, relative to expectations, during the period of the regression?

b. You now realize that MAD Inc. went through a major restructuring at the end of last month (which was the last month of your regression) and made the following changes:

• The firm sold off its magazine division, which had an unlevered beta of 0.6, for $20 million.
• It borrowed an additional $20 million and bought back stock worth $40 million.
• After the sale of the division and the share repurchase, MAD Inc. had $40 million in debt and $120 million in equity outstanding.

If the firm’s tax rate is 40%, re-estimate the beta, after these changes.