A share was bought for $20 (at t=0) and paid its annual dividend of $3 one year later (at t=1). Just after the dividend was paid, the share price was $16 (at t=1). What was the total return, capital return and income return? Calculate your answers as effective annual rates.
The choices are given in the same order: ## r_\text{total},r_\text{capital},r_\text{income} ##.
A firm has a debt-to-assets ratio of 50%. The firm then issues a large amount of debt to raise money for new projects of similar market risk to the company's existing projects. Assume a classical tax system. Which statement is correct?
A stock is expected to pay the following dividends:
Cash Flows of a Stock | ||||||
Time (yrs) | 0 | 1 | 2 | 3 | 4 | ... |
Dividend ($) | 8 | 8 | 8 | 20 | 8 | ... |
After year 4, the dividend will grow in perpetuity at 4% pa. The required return on the stock is 10% pa. Both the growth rate and required return are given as effective annual rates. Note that the $8 dividend at time zero is about to be paid tonight.
What is the current price of the stock?
Find Candys Corporation's Cash Flow From Assets (CFFA), also known as Free Cash Flow to the Firm (FCFF), over the year ending 30th June 2013.
Candys Corp | ||
Income Statement for | ||
year ending 30th June 2013 | ||
$m | ||
Sales | 200 | |
COGS | 50 | |
Operating expense | 10 | |
Depreciation | 20 | |
Interest expense | 10 | |
Income before tax | 110 | |
Tax at 30% | 33 | |
Net income | 77 | |
Candys Corp | ||
Balance Sheet | ||
as at 30th June | 2013 | 2012 |
$m | $m | |
Assets | ||
Current assets | 220 | 180 |
PPE | ||
Cost | 300 | 340 |
Accumul. depr. | 60 | 40 |
Carrying amount | 240 | 300 |
Total assets | 460 | 480 |
Liabilities | ||
Current liabilities | 175 | 190 |
Non-current liabilities | 135 | 130 |
Owners' equity | ||
Retained earnings | 50 | 60 |
Contributed equity | 100 | 100 |
Total L and OE | 460 | 480 |
Note: all figures are given in millions of dollars ($m).
A firm has forecast its Cash Flow From Assets (CFFA) for this year and management is worried that it is too low. Which one of the following actions will lead to a higher CFFA for this year (t=0 to 1)? Only consider cash flows this year. Do not consider cash flows after one year, or the change in the NPV of the firm. Consider each action in isolation.
A young lady is trying to decide if she should attend university or not.
The young lady's parents say that she must attend university because otherwise all of her hard work studying and attending school during her childhood was a waste.
What's the correct way to classify this item from a capital budgeting perspective when trying to decide whether to attend university?
The hard work studying at school in her childhood should be classified as:
Which one of the below statements about effective rates and annualised percentage rates (APR's) is NOT correct?
A semi-annual coupon bond has a yield of 3% pa. Which of the following statements about the yield is NOT correct? All rates are given to four decimal places.
Question 881 Nixon Shock, Bretton Woods, foreign exchange rate, foreign exchange system history, no explanation
In the ‘Nixon Shock’ on August 15, 1971, the United States government:
Question 981 margin loan, Basel accord, credit conversion factor
Margin loans secured by listed stock have a Basel III risk weight of 20%.
For margin loans that cannot be immediately cancelled by banks and asked to be repaid, the credit conversion factor (CCF) is 20%.
Suppose you have a stock portfolio worth $500,000, financed by:
- $300,000 of your own money; and
- $200,000 of the bank’s funds in the form of a margin loan which can only be cancelled by the bank after 5 days notice. The margin loan’s maximum LVR is 70%.
How much regulatory capital must the bank hold due to your margin loan? Assume that the bank wishes to pay dividends to its shareholders, so include the 2.5% capital conservation buffer in your calculations.