The security market line (SML) shows the relationship between beta and expected return.
Buying investment projects that plot above the SML would lead to:
When using the dividend discount model to price a stock:
### p_{0} = \frac{d_1}{r - g} ###
The growth rate of dividends (g):
A company's shares just paid their annual dividend of $2 each.
The stock price is now $40 (just after the dividend payment). The annual dividend is expected to grow by 3% every year forever. The assumptions of the dividend discount model are valid for this company.
What do you expect the effective annual dividend yield to be in 3 years (dividend yield from t=3 to t=4)?
Find Scubar Corporation's Cash Flow From Assets (CFFA), also known as Free Cash Flow to the Firm (FCFF), over the year ending 30th June 2013.
| Scubar Corp | ||
| Income Statement for | ||
| year ending 30th June 2013 | ||
| $m | ||
| Sales | 200 | |
| COGS | 60 | |
| Depreciation | 20 | |
| Rent expense | 11 | |
| Interest expense | 19 | |
| Taxable Income | 90 | |
| Taxes at 30% | 27 | |
| Net income | 63 | |
| Scubar Corp | ||
| Balance Sheet | ||
| as at 30th June | 2013 | 2012 |
| $m | $m | |
| Inventory | 60 | 50 |
| Trade debtors | 19 | 6 |
| Rent paid in advance | 3 | 2 |
| PPE | 420 | 400 |
| Total assets | 502 | 458 |
| Trade creditors | 10 | 8 |
| Bond liabilities | 200 | 190 |
| Contributed equity | 130 | 130 |
| Retained profits | 162 | 130 |
| Total L and OE | 502 | 458 |
Note: All figures are given in millions of dollars ($m).
The cash flow from assets was:
Question 472 quick ratio, accounting ratio
A firm has current assets totaling $1.5b of which cash is $0.25b and inventories is $0.5b. Current liabilities total $2b of which accounts payable is $1b.
What is the firm's quick ratio, also known as the acid test ratio?
The below screenshot of Microsoft's (MSFT) details were taken from the Google Finance website on 28 Nov 2014. Some information has been deliberately blanked out.
What was MSFT's approximate payout ratio over the last year?
Note that MSFT's past four quarterly dividends were $0.31, $0.28, $0.28 and $0.28.
Question 522 income and capital returns, real and nominal returns and cash flows, inflation, real estate
A residential investment property has an expected nominal total return of 6% pa and nominal capital return of 2.5% pa. Inflation is expected to be 2.5% pa.
All of the above are effective nominal rates and investors believe that they will stay the same in perpetuity.
What are the property's expected real total, capital and income returns?
The answer choices below are given in the same order.
Question 574 inflation, real and nominal returns and cash flows, NPV
What is the present value of a nominal payment of $100 in 5 years? The real discount rate is 10% pa and the inflation rate is 3% pa.
Question 798 idiom, diversification, market efficiency, sunk cost, no explanation
The following quotes are most closely related to which financial concept?
- “Opportunity is missed by most people because it is dressed in overalls and looks like work” -Thomas Edison
- “The only place where success comes before work is in the dictionary” -Vidal Sassoon
- “The safest way to double your money is to fold it over and put it in your pocket” - Kin Hubbard