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Question 332  bond pricing, premium par and discount bonds

Bonds X and Y are issued by the same US company. Both bonds yield 6% pa, and they have the same face value ($100), maturity, seniority, and payment frequency.

The only difference is that bond X pays coupons of 8% pa and bond Y pays coupons of 12% pa. Which of the following statements is true?



Question 438  option, no explanation

Two put options are exactly the same, but one matures in one year and the other matures in two years. Which option would you expect to have the higher price, the option which matures or , or should they have the price?


Question 457  PE ratio, Multiples valuation

Which firms tend to have low forward-looking price-earnings (PE) ratios? Only consider firms with positive PE ratios.



Question 605  cross currency interest rate parity, foreign exchange rate

If the Reserve Bank of Australia is expected to keep its interbank overnight cash rate at 2% pa while the US Federal Reserve is expected to keep its federal funds rate at 0% pa over the next year, is the AUD is expected to , , or remain against the USD over the next year?


Question 655  capital budgeting, opportunity cost, sunk cost

The 'time value of money' is most closely related to which of the following concepts?



Question 711  continuously compounding rate, continuously compounding rate conversion

A continuously compounded semi-annual return of 5% ##(r_\text{cc 6mth})## is equivalent to a continuously compounded annual return ##(r_\text{cc annual})## of:



Question 755  bond pricing, capital raising

A firm wishes to raise $50 million now. They will issue 7% pa semi-annual coupon bonds that will mature in 6 years and have a face value of $100 each. Bond yields are 5% pa, given as an APR compounding every 6 months, and the yield curve is flat.

How many bonds should the firm issue?



Question 766  CFFA, WACC, interest tax shield, DDM

Use the below information to value a levered company with constant annual perpetual cash flows from assets. The next cash flow will be generated in one year from now, so a perpetuity can be used to value this firm. Both the operating and firm free cash flows are constant (but not equal to each other).

Data on a Levered Firm with Perpetual Cash Flows
Item abbreviation Value Item full name
##\text{OFCF}## $100m Operating free cash flow
##\text{FFCF or CFFA}## $112m Firm free cash flow or cash flow from assets (includes interest tax shields)
##g## 0% pa Growth rate of OFCF and FFCF
##\text{WACC}_\text{BeforeTax}## 7% pa Weighted average cost of capital before tax
##\text{WACC}_\text{AfterTax}## 6.25% pa Weighted average cost of capital after tax
##r_\text{D}## 5% pa Cost of debt
##r_\text{EL}## 9% pa Cost of levered equity
##D/V_L## 50% pa Debt to assets ratio, where the asset value includes tax shields
##t_c## 30% Corporate tax rate
 

 

What is the value of the levered firm including interest tax shields?



Question 946  stock split, bonus issue, stock dividend

A 1-for-4 bonus issue is equivalent to a 4-for-1 stock split or a 25% stock dividend. or ?


Question 990  Multiples valuation, EV to EBITDA ratio, enterprise value

A firm has:

2 million shares;

$200 million EBITDA expected over the next year;

$100 million in cash (not included in EV);

1/3 market debt-to-assets ratio is (market assets = EV + cash);

4% pa expected dividend yield over the next year, paid annually with the next dividend expected in one year;

2% pa expected dividend growth rate;

40% expected payout ratio over the next year;

10 times EV/EBITDA ratio.

30% corporate tax rate.

The stock can be valued using the EV/EBITDA multiple, dividend discount model, Gordon growth model or PE multiple. Which of the below statements is NOT correct based on an EV/EBITDA multiple valuation?