For a price of $1040, Camille will sell you a share which just paid a dividend of $100, and is expected to pay dividends every year forever, growing at a rate of 5% pa.
So the next dividend will be ##100(1+0.05)^1=$105.00##, and the year after it will be ##100(1+0.05)^2=110.25## and so on.
The required return of the stock is 15% pa.
Find Scubar Corporation's Cash Flow From Assets (CFFA), also known as Free Cash Flow to the Firm (FCFF), over the year ending 30th June 2013.
Scubar Corp | ||
Income Statement for | ||
year ending 30th June 2013 | ||
$m | ||
Sales | 200 | |
COGS | 60 | |
Depreciation | 20 | |
Rent expense | 11 | |
Interest expense | 19 | |
Taxable Income | 90 | |
Taxes at 30% | 27 | |
Net income | 63 | |
Scubar Corp | ||
Balance Sheet | ||
as at 30th June | 2013 | 2012 |
$m | $m | |
Inventory | 60 | 50 |
Trade debtors | 19 | 6 |
Rent paid in advance | 3 | 2 |
PPE | 420 | 400 |
Total assets | 502 | 458 |
Trade creditors | 10 | 8 |
Bond liabilities | 200 | 190 |
Contributed equity | 130 | 130 |
Retained profits | 162 | 130 |
Total L and OE | 502 | 458 |
Note: All figures are given in millions of dollars ($m).
The cash flow from assets was:
Question 319 foreign exchange rate, monetary policy, American and European terms
Investors expect the Reserve Bank of Australia (RBA) to keep the policy rate steady at their next meeting.
Then unexpectedly, the RBA announce that they will increase the policy rate by 25 basis points due to fears that the economy is growing too fast and that inflation will be above their target rate of 2 to 3 per cent.
What do you expect to happen to Australia's exchange rate in the short term? The Australian dollar is likely to:
A European put 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 owning (being long) the put option?
Acquirer firm plans to launch a takeover of Target firm. The deal is expected to create a present value of synergies totaling $105 million. A 40% scrip and 60% cash offer will be made that pays the fair price for the target's shares plus 75% of the total synergy value. The cash will be paid out of the firm's cash holdings, no new debt or equity will be raised.
Firms Involved in the Takeover | ||
Acquirer | Target | |
Assets ($m) | 6,000 | 700 |
Debt ($m) | 4,800 | 400 |
Share price ($) | 40 | 20 |
Number of shares (m) | 30 | 15 |
Ignore transaction costs and fees. Assume that the firms' debt and equity are fairly priced, and that each firms' debts' risk, yield and values remain constant. The acquisition is planned to occur immediately, so ignore the time value of money.
Calculate the merged firm's share price and total number of shares after the takeover has been completed.
Alice, Bob, Chris and Delta are traders in the futures market. The following trades occur over a single day in a newly-opened equity index future that matures in one year which the exchange just made available.
1. Alice buys a future from Bob.
2. Chris buys a future from Delta.
3. Alice buys a future from Chris.
These were the only trades made in this equity index future. What was the trading volume and what is the open interest?
Question 722 mean and median returns, return distribution, arithmetic and geometric averages, continuously compounding rate
Here is a table of stock prices and returns. Which of the statements below the table is NOT correct?
Price and Return Population Statistics | ||||
Time | Prices | LGDR | GDR | NDR |
0 | 100 | |||
1 | 50 | -0.6931 | 0.5 | -0.5 |
2 | 100 | 0.6931 | 2 | 1 |
Arithmetic average | 0 | 1.25 | 0.25 | |
Arithmetic standard deviation | 0.9802 | 1.0607 | 1.0607 | |
Question 796 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 call option will be exercised?
Question 829 option, future, delta, gamma, theta, no explanation
Below are some statements about futures and European-style options on non-dividend paying stocks. Assume that the risk free rate is always positive. Which of these statements is NOT correct? All other things remaining equal:
You just spent $1,000 on your credit card. The interest rate is 24% pa compounding monthly. Assume that your credit card account has no fees and no minimum monthly repayment.
If you can't make any interest or principal payments on your credit card debt over the next year, how much will you owe one year from now?