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 370 capital budgeting, NPV, interest tax shield, WACC, CFFA
| Project Data | ||
| Project life | 2 yrs | |
| Initial investment in equipment | $600k | |
| Depreciation of equipment per year | $250k | |
| Expected sale price of equipment at end of project | $200k | |
| Revenue per job | $12k | |
| Variable cost per job | $4k | |
| Quantity of jobs per year | 120 | |
| Fixed costs per year, paid at the end of each year | $100k | |
| Interest expense in first year (at t=1) | $16.091k | |
| Interest expense in second year (at t=2) | $9.711k | |
| Tax rate | 30% | |
| Government treasury bond yield | 5% | |
| Bank loan debt yield | 6% | |
| Levered cost of equity | 12.5% | |
| Market portfolio return | 10% | |
| Beta of assets | 1.24 | |
| Beta of levered equity | 1.5 | |
| Firm's and project's debt-to-equity ratio | 25% | |
Notes
- The project will require an immediate purchase of $50k of inventory, which will all be sold at cost when the project ends. Current liabilities are negligible so they can be ignored.
Assumptions
- The debt-to-equity ratio will be kept constant throughout the life of the project. The amount of interest expense at the end of each period has been correctly calculated to maintain this constant debt-to-equity ratio. Note that interest expense is different in each year.
- Thousands are represented by 'k' (kilo).
- All cash flows occur at the start or end of the year as appropriate, not in the middle or throughout the year.
- All rates and cash flows are nominal. The inflation rate is 2% pa.
- All rates are given as effective annual rates.
- The 50% capital gains tax discount is not available since the project is undertaken by a firm, not an individual.
What is the net present value (NPV) of the project?
A European call option will mature in ##T## years with a strike price of ##K## dollars. The underlying asset has a price of ##S## dollars.
What is an expression for the payoff at maturity ##(f_T)## in dollars from owning (being long) the call option?
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:
Which of the below formulas gives the payoff at maturity ##(f_T)## from being long a future? Let the underlying asset price at maturity be ##S_T## and the locked-in futures price be ##K_T##.
Question 728 inflation, real and nominal returns and cash flows, income and capital returns, no explanation
Which of the following statements about gold is NOT correct? Assume that the gold price increases by inflation. Gold has a:
Question 729 book and market values, balance sheet, no explanation
If a firm makes a profit and pays no dividends, which of the firm’s accounts will increase?
One year ago you bought a $1,000,000 house partly funded using a mortgage loan. The loan size was $800,000 and the other $200,000 was your wealth or 'equity' in the house asset.
The interest rate on the home loan was 4% pa.
Over the year, the house produced a net rental yield of 2% pa and a capital gain of 2.5% pa.
Assuming that all cash flows (interest payments and net rental payments) were paid and received at the end of the year, and all rates are given as effective annual rates, what was the total return on your wealth over the past year?
Hint: Remember that wealth in this context is your equity (E) in the house asset (V = D+E) which is funded by the loan (D) and your deposit or equity (E).
Question 894 balance of payments, current account, no explanation
Below are four graphs of Australia's external position, published in the RBA's chart pack.
Assume that all assets and liabilities are debt which makes interest income and equity which makes dividend income.
Which of the following statements is NOT correct? As at the end of 2017, Australia’s:
To receive the dividend you must own the stock when the market closes on which date?