There are a number of ways that assets can be depreciated. Generally the government's tax office stipulates a certain method.
But if it didn't, what would be the ideal way to depreciate an asset from the perspective of a businesses owner?
A project has the following cash flows:
| Project Cash Flows | |
| Time (yrs) | Cash flow ($) |
| 0 | -90 |
| 1 | 30 |
| 2 | 105 |
The required return of a project is 10%, given as an effective annual rate. Assume that the cash flows shown in the table are paid all at once at the given point in time.
What is the Profitability Index (PI) of the project?
Question 385 Merton model of corporate debt, real option, option
A risky firm will last for one period only (t=0 to 1), then it will be liquidated. So it's assets will be sold and the debt holders and equity holders will be paid out in that order. The firm has the following quantities:
##V## = Market value of assets.
##E## = Market value of (levered) equity.
##D## = Market value of zero coupon bonds.
##F_1## = Total face value of zero coupon bonds which is promised to be paid in one year.
The levered equity graph above contains bold labels a to e. Which of the following statements about those labels is NOT correct?
In Australia in the 1980's, inflation was around 8% pa, and residential mortgage loan interest rates were around 14%.
In 2013, inflation was around 2.5% pa, and residential mortgage loan interest rates were around 4.5%.
If a person can afford constant mortgage loan payments of $2,000 per month, how much more can they borrow when interest rates are 4.5% pa compared with 14.0% pa?
Give your answer as a proportional increase over the amount you could borrow when interest rates were high ##(V_\text{high rates})##, so:
###\text{Proportional increase} = \dfrac{V_\text{low rates}-V_\text{high rates}}{V_\text{high rates}} ###
Assume that:
- Interest rates are expected to be constant over the life of the loan.
- Loans are interest-only and have a life of 30 years.
- Mortgage loan payments are made every month in arrears and all interest rates are given as annualised percentage rates (APR's) compounding per month.
Below are some statements about loans and bonds. The first descriptive sentence is correct. But one of the second sentences about the loans' or bonds' prices is not correct. Which statement is NOT correct? Assume that interest rates are positive.
Note that coupons or interest payments are the periodic payments made throughout a bond or loan's life. The face or par value of a bond or loan is the amount paid at the end when the debt matures.
Total cash flows can be broken into income and capital cash flows. What is the name given to the income cash flow from owning shares?
This annuity formula ##\dfrac{C_1}{r}\left(1-\dfrac{1}{(1+r)^3} \right)## is equivalent to which of the following formulas? Note the 3.
In the below formulas, ##C_t## is a cash flow at time t. All of the cash flows are equal, but paid at different times.
Question 488 income and capital returns, payout policy, payout ratio, DDM
Two companies BigDiv and ZeroDiv are exactly the same except for their dividend payouts.
BigDiv pays large dividends and ZeroDiv doesn't pay any dividends.
Currently the two firms have the same earnings, assets, number of shares, share price, expected total return and risk.
Assume a perfect world with no taxes, no transaction costs, no asymmetric information and that all assets including business projects are fairly priced and therefore zero-NPV.
All things remaining equal, which of the following statements is NOT correct?
Radio-Rentals.com offers the Apple iphone 5S smart phone for rent at $12.95 per week paid in advance on a 2 year contract. After renting the phone, you must return it to Radio-Rentals.
Kogan.com offers the Apple iphone 5S smart phone for sale at $699. You estimate that the phone will last for 3 years before it will break and be worthless.
Currently, the effective annual interest rate is 11.351%, the effective monthly interest rate 0.9% and the effective weekly interest rate is 0.207%. Assume that there are exactly 52 weeks per year and 12 months per year.
Find the equivalent annual cost of renting the phone and also buying the phone. The answers below are listed in the same order.
Being long a call and short a put which have the same exercise prices and underlying stock is equivalent to being: