Find Piano Bar's Cash Flow From Assets (CFFA), also known as Free Cash Flow to the Firm (FCFF), over the year ending 30th June 2013.
Piano Bar | ||
Income Statement for | ||
year ending 30th June 2013 | ||
$m | ||
Sales | 310 | |
COGS | 185 | |
Operating expense | 20 | |
Depreciation | 15 | |
Interest expense | 10 | |
Income before tax | 80 | |
Tax at 30% | 24 | |
Net income | 56 | |
Piano Bar | ||
Balance Sheet | ||
as at 30th June | 2013 | 2012 |
$m | $m | |
Assets | ||
Current assets | 240 | 230 |
PPE | ||
Cost | 420 | 400 |
Accumul. depr. | 50 | 35 |
Carrying amount | 370 | 365 |
Total assets | 610 | 595 |
Liabilities | ||
Current liabilities | 180 | 190 |
Non-current liabilities | 290 | 265 |
Owners' equity | ||
Retained earnings | 90 | 90 |
Contributed equity | 50 | 50 |
Total L and OE | 610 | 595 |
Note: all figures are given in millions of dollars ($m).
Question 215 equivalent annual cash flow, effective rate conversion
You're about to buy a car. These are the cash flows of the two different cars that you can buy:
- You can buy an old car for $5,000 now, for which you will have to buy $90 of fuel at the end of each week from the date of purchase. The old car will last for 3 years, at which point you will sell the old car for $500.
- Or you can buy a new car for $14,000 now for which you will have to buy $50 of fuel at the end of each week from the date of purchase. The new car will last for 4 years, at which point you will sell the new car for $1,000.
Bank interest rates are 10% pa, given as an effective annual rate. Assume that there are exactly 52 weeks in a year. Ignore taxes and environmental and pollution factors.
Should you buy the or the ?
A prospective home buyer can afford to pay $2,000 per month in mortgage loan repayments. The central bank recently lowered its policy rate by 0.25%, and residential home lenders cut their mortgage loan rates from 4.74% to 4.49%.
How much more can the prospective home buyer borrow now that interest rates are 4.49% rather than 4.74%? Give your answer as a proportional increase over the original amount he could borrow (##V_\text{before}##), so:
###\text{Proportional increase} = \frac{V_\text{after}-V_\text{before}}{V_\text{before}} ###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 compounding per month.
Estimate Microsoft's (MSFT) share price using a price earnings (PE) multiples approach with the following assumptions and figures only:
- Apple, Google and Microsoft are comparable companies,
- Apple's (AAPL) share price is $526.24 and historical EPS is $40.32.
- Google's (GOOG) share price is $1,215.65 and historical EPS is $36.23.
- Micrsoft's (MSFT) historical earnings per share (EPS) is $2.71.
Source: Google Finance 28 Feb 2014.
Over the next year, the management of an unlevered company plans to:
- Achieve firm free cash flow (FFCF or CFFA) of $1m.
- Pay dividends of $1.8m
- Complete a $1.3m share buy-back.
- Spend $0.8m on new buildings without buying or selling any other fixed assets. This capital expenditure is included in the CFFA figure quoted above.
Assume that:
- All amounts are received and paid at the end of the year so you can ignore the time value of money.
- The firm has sufficient retained profits to pay the dividend and complete the buy back.
- The firm plans to run a very tight ship, with no excess cash above operating requirements currently or over the next year.
How much new equity financing will the company need? In other words, what is the value of new shares that will need to be issued?
Question 543 price gains and returns over time, IRR, NPV, income and capital returns, effective return
For an asset price to triple every 5 years, what must be the expected future capital return, given as an effective annual rate?
Question 545 income and capital returns, fully amortising loan, no explanation
Which of the following statements about the capital and income returns of a 25 year fully amortising loan asset is correct?
Assume that the yield curve (which shows total returns over different maturities) is flat and is not expected to change.
Over the 25 years from issuance to maturity, a fully amortising loan's expected annual effective:
Question 744 income and capital returns, real and nominal returns and cash flows, inflation
If someone says "my shares rose by 10% last year", what do you assume that they mean? The effective annual:
A graph of assets’ expected returns ##(\mu)## versus standard deviations ##(\sigma)## is given in the below diagram.
Each letter corresponds to a separate coloured area. The portfolios at the boundary of the areas, on the black lines, are excluded from each area. Assume that all assets represented in this graph are fairly priced, and that all risky assets can be short-sold.
Which of the following statements about this graph and Markowitz portfolio theory is NOT correct?