The required return of a project is 10%, given as an effective annual rate. Assume that the cash flows shown in the table are paid all at once at the given point in time.
What is the Profitability Index (PI) of the project?
| Project Cash Flows | |
| Time (yrs) | Cash flow ($) |
| 0 | -100 |
| 1 | 0 |
| 2 | 121 |
Question 446 working capital decision, corporate financial decision theory
The working capital decision primarily affects which part of a business?
What type of present value equation is best suited to value a residential house investment property that is expected to pay constant rental payments forever? Note that 'constant' has the same meaning as 'level' in this context.
Question 787 fixed for floating interest rate swap, intermediated swap
The below table summarises the borrowing costs confronting two companies A and B.
| Bond Market Yields | ||||
| Fixed Yield to Maturity (%pa) | Floating Yield (%pa) | |||
| Firm A | 2 | L - 0.1 | ||
| Firm B | 2.5 | L | ||
Firm A wishes to borrow at a floating rate and Firm B wishes to borrow at a fixed rate. Design an intermediated swap (which means there will actually be two swaps) that nets a bank 0.15% and grants the remaining swap benefits to Firm A only. Which of the following statements about the swap is NOT correct?
Question 797 option, Black-Scholes-Merton option pricing, option delta, no explanation
Which of the following quantities from the Black-Scholes-Merton option pricing formula gives the risk-neutral probability that a European put option will be exercised?
The famous investor Warren Buffett is one of few portfolio managers who appears to have consistently beaten the market. His company Berkshire Hathaway (BRK) appears to have outperformed the US S&P500 market index, shown in the graph below.
Read the below statements about Warren Buffett and the implications for the Efficient Markets Hypothesis (EMH) theory of Eugene Fama. Assume that the first sentence is true. Analyse the second sentence and select the answer option which is NOT correct. In other words, find the false statement in the second sentence.
Which one of the following businesses is likely to be a public company in Australia, judging by its name?
Question 1000 duration, duration of a perpetuity with growth, needs refinement
An unlevered firm cuts its dividends and re-invests in zero-NPV projects with the same risk as its existing projects. This decreases the dividend yield, but increases the firm's equity's dividend growth rate and duration, while its total required return on equity remains unchanged. The equity can be valued as a perpetuity and the duration of a perpetuity is given below:
###D_\text{Macaulay} = \dfrac{1+r}{r-g}###What will be the effect on the stock's CAPM beta? Assume that there's no change in the risk free rate or market risk premium. The company's equity beta will: