A stock is expected to pay the following dividends:
| Cash Flows of a Stock | ||||||
| Time (yrs) | 0 | 1 | 2 | 3 | 4 | ... |
| Dividend ($) | 2 | 2 | 2 | 10 | 3 | ... |
After year 4, the dividend will grow in perpetuity at 4% pa. The required return on the stock is 10% pa. Both the growth rate and required return are given as effective annual rates.
What will be the price of the stock in 5 years (t = 5), just after the dividend at that time has been paid?
An investor bought two fixed-coupon bonds issued by the same company, a zero-coupon bond and a 7% pa semi-annual coupon bond. Both bonds have a face value of $1,000, mature in 10 years, and had a yield at the time of purchase of 8% pa.
A few years later, yields fell to 6% pa. Which of the following statements is correct? Note that a capital gain is an increase in price.
Question 413 CFFA, interest tax shield, depreciation tax shield
There are many ways to calculate a firm's free cash flow (FFCF), also called cash flow from assets (CFFA).
One method is to use the following formulas to transform net income (NI) into FFCF including interest and depreciation tax shields:
###FFCF=NI + Depr - CapEx -ΔNWC + IntExp###
###NI=(Rev - COGS - Depr - FC - IntExp).(1-t_c )###
Another popular method is to use EBITDA rather than net income. EBITDA is defined as:
###EBITDA=Rev - COGS - FC###
One of the below formulas correctly calculates FFCF from EBITDA, including interest and depreciation tax shields, giving an identical answer to that above. Which formula is correct?
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?
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 526 real and nominal returns and cash flows, inflation, no explanation
How can a nominal cash flow be precisely converted into a real cash flow?
Question 580 price gains and returns over time, time calculation, effective rate
How many years will it take for an asset's price to quadruple (be four times as big, say from $1 to $4) if the price grows by 15% pa?
A company has a 95% daily Value at Risk (VaR) of $1 million. The units of this VaR are in:
Question 862 yield curve, bond pricing, bill pricing, monetary policy, no explanation
Refer to the below graph when answering the questions.
Which of the following statements is NOT correct?