Question 22 NPV, perpetuity with growth, effective rate, effective rate conversion
What is the NPV of the following series of cash flows when the discount rate is 10% given as an effective annual rate?
The first payment of $90 is in 3 years, followed by payments every 6 months in perpetuity after that which shrink by 3% every 6 months. That is, the growth rate every 6 months is actually negative 3%, given as an effective 6 month rate. So the payment at ## t=3.5 ## years will be ## 90(1-0.03)^1=87.3 ##, and so on.
A share just paid its semi-annual dividend of $10. The dividend is expected to grow at 2% every 6 months forever. This 2% growth rate is an effective 6 month rate. Therefore the next dividend will be $10.20 in six months. The required return of the stock 10% pa, given as an effective annual rate.
What is the price of the share now?
Your friend just bought a house for $1,000,000. He financed it using a $900,000 mortgage loan and a deposit of $100,000.
In the context of residential housing and mortgages, the 'equity' or 'net wealth' tied up in a house is the value of the house less the value of the mortgage loan. Assuming that your friend's only asset is his house, his net wealth is $100,000.
If house prices suddenly fall by 15%, what would be your friend's percentage change in net wealth?
Assume that:
- No income (rent) was received from the house during the short time over which house prices fell.
- Your friend will not declare bankruptcy, he will always pay off his debts.
One method for calculating a firm's free cash flow (FFCF, or CFFA) is to ignore interest expense. That is, pretend that interest expense ##(IntExp)## is zero:
###\begin{aligned} FFCF &= (Rev - COGS - Depr - FC - IntExp)(1-t_c) + Depr - CapEx -\Delta NWC + IntExp \\ &= (Rev - COGS - Depr - FC - 0)(1-t_c) + Depr - CapEx -\Delta NWC - 0\\ \end{aligned}###
A man has taken a day off from his casual painting job to relax.
It's the end of the day and he's thinking about the hours that he could have spent working (in the past) which are now:
Question 576 inflation, real and nominal returns and cash flows
What is the present value of a nominal payment of $1,000 in 4 years? The nominal discount rate is 8% pa and the inflation rate is 2% pa.
Question 624 franking credit, personal tax on dividends, imputation tax system, no explanation
Which of the following statements about Australian franking credits is NOT correct? Franking credits:
A trader sells one crude oil European style put option contract on the CME expiring in one year with an exercise price of $44 per barrel for a price of $6.64. The crude oil spot price is $40.33. If the trader doesn’t close out her contract before maturity, then at maturity she will have the:
Being long a call and short a put which have the same exercise prices and underlying stock is equivalent to being:
Which one of the following statements is NOT correct? A 1-for-4 bonus issue: