A company has:
- 100 million ordinary shares outstanding which are trading at a price of $5 each. Market analysts estimated that the company's ordinary stock has a beta of 1.5. The risk-free rate is 5% and the market return is 10%.
- 1 million preferred shares which have a face (or par) value of $100 and pay a constant annual dividend of 9% of par. The next dividend will be paid in one year. Assume that all preference dividends will be paid when promised. They currently trade at a price of $90 each.
- Debentures that have a total face value of $200 million and a yield to maturity of 6% per annum. They are publicly traded and their market price is equal to 110% of their face value.
The corporate tax rate is 30%. All returns and yields are given as effective annual rates.
What is the company's after-tax Weighted Average Cost of Capital (WACC)? Assume a classical tax system.
Question 498 NPV, Annuity, perpetuity with growth, multi stage growth model
A business project is expected to cost $100 now (t=0), then pay $10 at the end of the third (t=3), fourth, fifth and sixth years, and then grow by 5% pa every year forever. So the cash flow will be $10.5 at the end of the seventh year (t=7), then $11.025 at the end of the eighth year (t=8) and so on perpetually. The total required return is 10℅ pa.
Which of the following formulas will NOT give the correct net present value of the project?
What is the correlation of a variable X with itself?
The corr(X, X) or ##\rho_{X,X}## equals:
Question 699 utility, risk aversion, utility function, gamble
Mr Blue, Miss Red and Mrs Green are people with different utility functions.
Each person has $50 of initial wealth. A coin toss game is offered to each person at a casino where the player can win or lose $50. Each player can flip a coin and if they flip heads, they receive $50. If they flip tails then they will lose $50. Which of the following statements is NOT correct?
The following cash flows are expected:
- A perpetuity of yearly payments of $30, with the first payment in 5 years (first payment at t=5, which continues every year after that forever).
- One payment of $100 in 6 years and 3 months (t=6.25).
What is the NPV of the cash flows if the discount rate is 10% given as an effective annual rate?
A one year European-style call option has a strike price of $4. The option's underlying stock pays no dividends and currently trades at $5. The risk-free interest rate is 10% pa continuously compounded. Use a single step binomial tree to calculate the option price, assuming that the price could rise to $8 ##(u = 1.6)## or fall to $3.125 ##(d = 1/1.6)## in one year. The call option price now is:
Which one of the following statements is NOT correct? A 1-for-4 bonus issue:
| Major City Apartment Prices | |||
| One bedroom, one bathroom, around 55 square metre floor space, Dec 2018 | |||
| City | Advertised price | Currency | FX quote |
| London, Great Britain | 995,500 | GBP | 1.3 USD per GBP |
| Paris, France | 639,000 | EUR | 0.88 USD per EUR |
| San Francisco, USA | 859,000 | USD | 1 USD per USD |
| Shanghai, China | 6,300,000 | RMB | 6.9 RMB per USD |
| Sydney, Australia | 670,000 | AUD | 0.72 USD per AUD |
| Tokyo, Japan | 50,800,000 | JPY | 112 JPY per USD |
Which city has the most expensive apartment, measured in United States Dollars (USD)? Pay attention to the FX quotes.