The following equation is the Dividend Discount Model, also known as the 'Gordon Growth Model' or the 'Perpetuity with growth' equation.
### p_0 = \frac{d_1}{r - g} ###
Which expression is NOT equal to the expected dividend yield?
Find Candys Corporation's Cash Flow From Assets (CFFA), also known as Free Cash Flow to the Firm (FCFF), over the year ending 30th June 2013.
| Candys Corp | ||
| Income Statement for | ||
| year ending 30th June 2013 | ||
| $m | ||
| Sales | 200 | |
| COGS | 50 | |
| Operating expense | 10 | |
| Depreciation | 20 | |
| Interest expense | 10 | |
| Income before tax | 110 | |
| Tax at 30% | 33 | |
| Net income | 77 | |
| Candys Corp | ||
| Balance Sheet | ||
| as at 30th June | 2013 | 2012 |
| $m | $m | |
| Assets | ||
| Current assets | 220 | 180 |
| PPE | ||
| Cost | 300 | 340 |
| Accumul. depr. | 60 | 40 |
| Carrying amount | 240 | 300 |
| Total assets | 460 | 480 |
| Liabilities | ||
| Current liabilities | 175 | 190 |
| Non-current liabilities | 135 | 130 |
| Owners' equity | ||
| Retained earnings | 50 | 60 |
| Contributed equity | 100 | 100 |
| Total L and OE | 460 | 480 |
Note: all figures are given in millions of dollars ($m).
A highly levered risky firm is trying to raise more debt. The types of debt being considered, in no particular order, are senior bonds, junior bonds, bank accepted bills, promissory notes and bank loans.
Which of these forms of debt is the safest from the perspective of the debt investors who are thinking of investing in the firm's new debt?
A fairly priced stock has a beta that is the same as the market portfolio's beta. Treasury bonds yield 5% pa and the market portfolio's expected return is 10% pa. What is the expected return of the stock?
The following equation is the Dividend Discount Model, also known as the 'Gordon Growth Model' or the 'Perpetuity with growth' equation.
### p_0= \frac{c_1}{r-g} ###
Which expression is equal to the expected dividend return?
Question 445 financing decision, corporate financial decision theory
The financing decision primarily affects which part of a business?
A stock just paid a dividend of $1. Future annual dividends are expected to grow by 2% pa. The next dividend of $1.02 (=1*(1+0.02)^1) will be in one year, and the year after that the dividend will be $1.0404 (=1*(1+0.02)^2), and so on forever.
Its required total return is 10% pa. The total required return and growth rate of dividends are given as effective annual rates.
Calculate the current stock price.
Question 575 inflation, real and nominal returns and cash flows
You expect a nominal payment of $100 in 5 years. The real discount rate is 10% pa and the inflation rate is 3% pa. Which of the following statements is NOT correct?
A trader buys a one year futures contract on crude oil. The contract is for the delivery of 1,000 barrels. The current futures price is $38.94 per barrel. The initial margin is $3,410 per contract, and the maintenance margin is $3,100 per contract.
What is the smallest price change that would lead to a margin call for the buyer?
A stock has a beta of 1.5. The market's expected total return is 10% pa and the risk free rate is 5% pa, both given as effective annual rates.
In the last 5 minutes, bad economic news was released showing a higher chance of recession. Over this time the share market fell by 1%. The risk free rate was unchanged.
What do you think was the stock's historical return over the last 5 minutes, given as an effective 5 minute rate?