A manufacturing company is considering a new project in the more risky services industry. The cash flows from assets (CFFA) are estimated for the new project, with interest expense excluded from the calculations. To get the levered value of the project, what should these unlevered cash flows be discounted by?
Assume that the manufacturing firm has a target debt-to-assets ratio that it sticks to.
Question 315 foreign exchange rate, American and European terms
If the current AUD exchange rate is USD 0.9686 = AUD 1, what is the European terms quote of the AUD against the USD?
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 European call option will mature in ##T## years with a strike price of ##K## dollars. The underlying asset has a price of ##S## dollars.
What is an expression for the payoff at maturity ##(f_T)## in dollars from having written (being short) the call option?
A stock just paid a dividend of $1. Future annual dividends are expected to grow by 2% pa. The next dividend of $1.02 (=1*(1+0.02)^1) will be in one year, and the year after that the dividend will be $1.0404 (=1*(1+0.02)^2), and so on forever.
Its required total return is 10% pa. The total required return and growth rate of dividends are given as effective annual rates.
Calculate the current stock price.
Question 559 variance, standard deviation, covariance, correlation
Which of the following statements about standard statistical mathematics notation is NOT correct?
Question 574 inflation, real and nominal returns and cash flows, NPV
What is the present value of a nominal payment of $100 in 5 years? The real discount rate is 10% pa and the inflation rate is 3% pa.
A stock has a beta of 1.5. The market's expected total return is 10% pa and the risk free rate is 5% pa, both given as effective annual rates.
In the last 5 minutes, bad economic news was released showing a higher chance of recession. Over this time the share market fell by 1%. The risk free rate was unchanged.
What do you think was the stock's historical return over the last 5 minutes, given as an effective 5 minute rate?
Question 708 continuously compounding rate, continuously compounding rate conversion
Convert a 10% continuously compounded annual rate ##(r_\text{cc annual})## into an effective annual rate ##(r_\text{eff annual})##. The equivalent effective annual rate is:
Question 877 arithmetic and geometric averages, utility, utility function
Gross discrete returns in different states of the world are presented in the table below. A gross discrete return is defined as ##P_1/P_0##, where ##P_0## is the price now and ##P_1## is the expected price in the future. An investor can purchase only a single asset, A, B, C or D. Assume that a portfolio of assets is not possible.
Gross Discrete Returns | ||
In Different States of the World | ||
Investment | World states (probability) | |
asset | Good (50%) | Bad (50%) |
A | 2 | 0.5 |
B | 1.1 | 0.9 |
C | 1.1 | 0.95 |
D | 1.01 | 1.01 |
Which of the following statements about the different assets is NOT correct? Asset: