Question 50 DDM, stock pricing, inflation, real and nominal returns and cash flows
Most listed Australian companies pay dividends twice per year, the 'interim' and 'final' dividends, which are roughly 6 months apart.
You are an equities analyst trying to value the company BHP. You decide to use the Dividend Discount Model (DDM) as a starting point, so you study BHP's dividend history and you find that BHP tends to pay the same interim and final dividend each year, and that both grow by the same rate.
You expect BHP will pay a $0.55 interim dividend in six months and a $0.55 final dividend in one year. You expect each to grow by 4% next year and forever, so the interim and final dividends next year will be $0.572 each, and so on in perpetuity.
Assume BHP's cost of equity is 8% pa. All rates are quoted as nominal effective rates. The dividends are nominal cash flows and the inflation rate is 2.5% pa.
What is the current price of a BHP share?
There are many ways to calculate a firm's free cash flow (FFCF), also called cash flow from assets (CFFA). Some include the annual interest tax shield in the cash flow and some do not.
Which of the below FFCF formulas include the interest tax shield in the cash flow?
###(1) \quad FFCF=NI + Depr - CapEx -ΔNWC + IntExp### ###(2) \quad FFCF=NI + Depr - CapEx -ΔNWC + IntExp.(1-t_c)### ###(3) \quad FFCF=EBIT.(1-t_c )+ Depr- CapEx -ΔNWC+IntExp.t_c### ###(4) \quad FFCF=EBIT.(1-t_c) + Depr- CapEx -ΔNWC### ###(5) \quad FFCF=EBITDA.(1-t_c )+Depr.t_c- CapEx -ΔNWC+IntExp.t_c### ###(6) \quad FFCF=EBITDA.(1-t_c )+Depr.t_c- CapEx -ΔNWC### ###(7) \quad FFCF=EBIT-Tax + Depr - CapEx -ΔNWC### ###(8) \quad FFCF=EBIT-Tax + Depr - CapEx -ΔNWC-IntExp.t_c### ###(9) \quad FFCF=EBITDA-Tax - CapEx -ΔNWC### ###(10) \quad FFCF=EBITDA-Tax - CapEx -ΔNWC-IntExp.t_c###The formulas for net income (NI also called earnings), EBIT and EBITDA are given below. Assume that depreciation and amortisation are both represented by 'Depr' and that 'FC' represents fixed costs such as rent.
###NI=(Rev - COGS - Depr - FC - IntExp).(1-t_c )### ###EBIT=Rev - COGS - FC-Depr### ###EBITDA=Rev - COGS - FC### ###Tax =(Rev - COGS - Depr - FC - IntExp).t_c= \dfrac{NI.t_c}{1-t_c}###Question 472 quick ratio, accounting ratio
A firm has current assets totaling $1.5b of which cash is $0.25b and inventories is $0.5b. Current liabilities total $2b of which accounts payable is $1b.
What is the firm's quick ratio, also known as the acid test ratio?
Which one of the below statements about effective rates and annualised percentage rates (APR's) is NOT correct?
A company can invest funds in a five year project at LIBOR plus 50 basis points pa. The five-year swap rate is 4% pa. What fixed rate of interest can the company earn over the next five years by using the swap?
Question 729 book and market values, balance sheet, no explanation
If a firm makes a profit and pays no dividends, which of the firm’s accounts will increase?
Question 791 mean and median returns, return distribution, arithmetic and geometric averages, continuously compounding rate, log-normal distribution, VaR, confidence interval
A risk manager has identified that their pension fund’s continuously compounded portfolio returns are normally distributed with a mean of 5% pa and a standard deviation of 20% pa. The fund’s portfolio is currently valued at $1 million. Assume that there is no estimation error in the above figures. To simplify your calculations, all answers below use 2.33 as an approximation for the normal inverse cumulative density function at 99%. All answers are rounded to the nearest dollar. Which of the following statements is NOT correct?
Which form of production is included in the Gross Domestic Product (GDP) reported by the government statistics agency?
Which of the following statements about vanilla floating coupon bonds paying quarterly coupons is NOT correct? A vanilla floating coupon bond's: