# Fight Finance

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According to the theory of the Capital Asset Pricing Model (CAPM), total risk can be broken into two components, systematic risk and idiosyncratic risk. Which of the following events would be considered a systematic, undiversifiable event according to the theory of the CAPM?

The following is the Dividend Discount Model used to price stocks:

$$p_0=\frac{d_1}{r-g}$$

Which of the following statements about the Dividend Discount Model is NOT correct?

Find Trademark Corporation's Cash Flow From Assets (CFFA), also known as Free Cash Flow to the Firm (FCFF), over the year ending 30th June 2013.

 Trademark Corp Income Statement for year ending 30th June 2013 $m Sales 100 COGS 25 Operating expense 5 Depreciation 20 Interest expense 20 Income before tax 30 Tax at 30% 9 Net income 21  Trademark Corp Balance Sheet as at 30th June 2013 2012$m $m Assets Current assets 120 80 PPE Cost 150 140 Accumul. depr. 60 40 Carrying amount 90 100 Total assets 210 180 Liabilities Current liabilities 75 65 Non-current liabilities 75 55 Owners' equity Retained earnings 10 10 Contributed equity 50 50 Total L and OE 210 180 Note: all figures are given in millions of dollars ($m).

If the USD appreciates against the AUD, the American terms quote of the AUD will or ?

One method for calculating a firm's free cash flow (FFCF, or CFFA) is to ignore interest expense. That is, pretend that interest expense $(IntExp)$ is zero:

\begin{aligned} FFCF &= (Rev - COGS - Depr - FC - IntExp)(1-t_c) + Depr - CapEx -\Delta NWC + IntExp \\ &= (Rev - COGS - Depr - FC - 0)(1-t_c) + Depr - CapEx -\Delta NWC - 0\\ \end{aligned}
Does this annual FFCF with zero interest expense or the annual interest tax shield?

One year ago a pharmaceutical firm floated by selling its 1 million shares for $100 each. Its book and market values of equity were both$100m. Its debt totalled $50m. The required return on the firm's assets was 15%, equity 20% and debt 5% pa. In the year since then, the firm: • Earned net income of$29m.
• Paid dividends totaling $10m. • Discovered a valuable new drug that will lead to a massive 1,000 times increase in the firm's net income in 10 years after the research is commercialised. News of the discovery was publicly announced. The firm's systematic risk remains unchanged. Which of the following statements is NOT correct? All statements are about current figures, not figures one year ago. Hint: Book return on assets (ROA) and book return on equity (ROE) are ratios that accountants like to use to measure a business's past performance. $$\text{ROA}= \dfrac{\text{Net income}}{\text{Book value of assets}}$$ $$\text{ROE}= \dfrac{\text{Net income}}{\text{Book value of equity}}$$ The required return on assets $r_V$ is a return that financiers like to use to estimate a business's future required performance which compensates them for the firm's assets' risks. If the business were to achieve realised historical returns equal to its required returns, then investment into the business's assets would have been a zero-NPV decision, which is neither good nor bad but fair. $$r_\text{V, 0 to 1}= \dfrac{\text{Cash flow from assets}_\text{1}}{\text{Market value of assets}_\text{0}} = \dfrac{CFFA_\text{1}}{V_\text{0}}$$ Similarly for equity and debt. 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.

If a stock's expected future prices are log-normally distributed, what will be bigger, the stock's or future price? Or would you expect them to be ?

In the dividend discount model (DDM), share prices fall when dividends are paid. Let the high price before the fall be called the peak, and the low price after the fall be called the trough.

$$P_0=\dfrac{C_1}{r-g}$$

Which of the following statements about the DDM is NOT correct?

Which of the following statements about the Basel 3 minimum capital requirements is NOT correct? Common equity tier 1 (CET1) comprises the highest quality components of capital that fully satisfy all of the following characteristics: