Fight Finance

Question 230  bond pricing, capital raising

A firm wishes to raise $10 million now. They will issue 6% pa semi-annual coupon bonds that will mature in 8 years and have a face value of $1,000 each. Bond yields are 10% pa, given as an APR compounding every 6 months, and the yield curve is flat.

How many bonds should the firm issue? All numbers are rounded up.

(a) 9,023 bonds

(b) 10,000 bonds

(c) 11,485 bonds

(d) 12,713 bonds

(e) 12,768 bonds

Question 259  fully amortising loan, APR

You want to buy a house priced at $400,000. You have saved a deposit of $40,000. The bank has agreed to lend you $360,000 as a fully amortising loan with a term of 30 years. The interest rate is 8% pa payable monthly and is not expected to change.

What will be your monthly payments?

(a) $1,000

(b) $1,106.6497

(c) $2,400

(d) $2,571.8327

(e) $2,641.5525

Question 296  CFFA, interest tax shield

Which one of the following will decrease net income (NI) but increase cash flow from assets (CFFA) in this year for a tax-paying firm, all else remaining constant?

Remember:

###NI=(Rev-COGS-FC-Depr-IntExp).(1-t_c )### ###CFFA=NI+Depr-CapEx - ΔNWC+IntExp###

(a) An increase in revenue (##Rev##).

(b) An decrease in revenue (##Rev##).

(c) An increase in rent expense (part of fixed costs, ##FC##).

(d) An increase in interest expense (##IntExp##).

(e) An increase in dividends.

Question 360  CFFA

Find Ching-A-Lings Corporation's Cash Flow From Assets (CFFA), also known as Free Cash Flow to the Firm (FCFF), over the year ending 30th June 2013.

Ching-A-Lings Corp
Income Statement for
year ending 30th June 2013
	$m
Sales	100
COGS	20
Depreciation	20
Rent expense	11
Interest expense	19
Taxable Income	30
Taxes at 30%	9
Net income	21

Ching-A-Lings Corp
Balance Sheet
as at 30th June	2013	2012
	$m	$m
Inventory	49	38
Trade debtors	14	2
Rent paid in advance	5	5
PPE	400	400
Total assets	468	445
Trade creditors	4	10
Bond liabilities	200	190
Contributed equity	145	145
Retained profits	119	100
Total L and OE	468	445

 

Note: All figures are given in millions of dollars ($m).

The cash flow from assets was:

(a) $43m

(b) $31m

(c) $23m

(d) $11m

(e) $1m

Question 378  leverage, capital structure, no explanation

A levered company's required return on debt is always less than its required return on equity. or ?

Question 458  capital budgeting, no explanation

Which of the following is NOT a valid method to estimate future revenues or costs in a pro-forma income statement when trying to value a company?

(a) Extrapolation of past trends to estimate future revenues or costs.

(b) Using a constant or trending 'percent of sales' method to forecast future costs.

(c) Use futures (derivative) prices, if available, to forecast prices which helps calculate revenues.

(d) Use forecast GDP growth rates published by the statistics bureau to estimate future revenue growth.

(e) Assume that markets are efficient and use the random walk hypothesis to substitute a random value for revenue.

Question 656  debt terminology

Which of the following statements is NOT correct? Lenders:

(a) Buy debt.

(b) Own debt.

(c) Are owed money.

(d) Write debt.

(e) Have debt assets.

Question 763  multi stage growth model, DDM

A stock is expected to pay its first dividend of $20 in 3 years (t=3), which it will continue to pay for the next nine years, so there will be ten $20 payments altogether with the last payment in year 12 (t=12).

From the thirteenth year onward, the dividend is expected to be 4% more than the previous year, forever. So the dividend in the thirteenth year (t=13) will be $20.80, then $21.632 in year 14, and so on forever. The required return of the stock is 10% pa. All rates are effective annual rates. Calculate the current (t=0) stock price.

(a) $202.7888

(b) $212.0218

(c) $233.35

(d) $448.2298

(e) $469.558

Question 816  expected and historical returns

If future expected cash flows rise, and future required returns remain the same, then prices will , or remain the ?

Question 853  gross domestic product

Which form of production is included in the Gross Domestic Product (GDP) reported by the government statistics agency?

(a) Home-production such as Grandma babysitting her grand-children for free.

(b) Production in the under-ground economy such as work paid for in cash to evade the tax authorities.

(c) Production in the wild, such as when kangaroos multiply in the bush.

(d) Goods produced and exchanged in the barter economy that are not reported to the tax authorities.

(e) Inventory build-up such as goods produced in a factory that were sold to a wholesaler but have not yet been sold to a retailer or consumer.