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 fairly valued share's current price is $4 and it has a total required return of 30%. Dividends are paid annually and next year's dividend is expected to be $1. After that, dividends are expected to grow by 5% pa in perpetuity. All rates are effective annual returns.
What is the expected dividend income paid at the end of the second year (t=2) and what is the expected capital gain from just after the first dividend (t=1) to just after the second dividend (t=2)? The answers are given in the same order, the dividend and then the capital gain.
The first payment of a constant perpetual annual cash flow is received at time 5. Let this cash flow be ##C_5## and the required return be ##r##.
So there will be equal annual cash flows at time 5, 6, 7 and so on forever, and all of the cash flows will be equal so ##C_5 = C_6 = C_7 = ...##
When the perpetuity formula is used to value this stream of cash flows, it will give a value (V) at time:
The efficient markets hypothesis (EMH) and no-arbitrage pricing theory are most closely related to which of the following concepts?
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?
Question 787 fixed for floating interest rate swap, intermediated swap
The below table summarises the borrowing costs confronting two companies A and B.
| Bond Market Yields | ||||
| Fixed Yield to Maturity (%pa) | Floating Yield (%pa) | |||
| Firm A | 2 | L - 0.1 | ||
| Firm B | 2.5 | L | ||
Firm A wishes to borrow at a floating rate and Firm B wishes to borrow at a fixed rate. Design an intermediated swap (which means there will actually be two swaps) that nets a bank 0.15% and grants the remaining swap benefits to Firm A only. Which of the following statements about the swap is NOT correct?
On 1 February 2016 you were told that your refinery company will need to purchase oil on 1 July 2016. You were afraid of the oil price rising between now and then so you bought some August 2016 futures contracts on 1 February 2016 to hedge against changes in the oil price. On 1 February 2016 the oil price was $40 and the August 2016 futures price was $43.
It's now 1 July 2016 and oil price is $45 and the August 2016 futures price is $46. You bought the spot oil and closed out your futures position on 1 July 2016.
What was the effective price paid for the oil, taking into account basis risk? All spot and futures oil prices quoted above and below are per barrel.
The DuPont formula is:
###\dfrac{\text{Net Profit}}{\text{Sales}} \times \dfrac{\text{Sales}}{\text{Total Assets}} \times \dfrac{\text{Total Assets}}{\text{Owners' Equity}}###
Which of the following statements about the DuPont formula 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:
Below is a table of the 'Risk-weights for residential mortgages' as shown in APRA Basel 3 Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk January 2013.
| LVR (%) |
Standard eligible mortgages |
Non-standard eligible mortgages |
||
|
|
Risk-weight (no mortgage insurance) % |
Risk-weight (with at least 40% of the mortgage insured by an acceptable LMI) % |
Risk-weight (no mortgage insurance) % |
Risk-weight (with at least 40% of the mortgage insured by an acceptable LMI) % |
| 0 – 60 |
35 |
35 |
50 |
35 |
| 60.01 – 80 |
35 |
35 |
75 |
50 |
| 80.01 – 90 |
50 |
35 |
100 |
75 |
| 90.01 – 100 |
75 |
50 |
100 |
75 |
| > 100.01 |
100 |
75 |
100 |
100 |
A bank is considering granting a home loan to a man to buy a house worth $1.25 million using his own funds and the loan. The loan would be standard with no lenders mortgage insurance (LMI) and an LVR of 80%.
What is the minimum regulatory capital that the bank requires to grant the home loan under the Basel 3 Accord? Ignore the capital conservation buffer.