A company issues a large amount of bonds to raise money for new projects of similar risk to the company's existing projects. The net present value (NPV) of the new projects is positive but small. Assume a classical tax system. Which statement is NOT correct?
A furniture distributor offers credit to its customers. Customers are given 25 days to pay for their goods, but if they pay immediately they will get a 1% discount.
What is the effective interest rate implicit in the discount being offered? Assume 365 days in a year and that all customers pay either immediately or on the 25th day. All rates given below are effective annual rates.
A stock is expected to pay the following dividends:
Cash Flows of a Stock | ||||||
Time (yrs) | 0 | 1 | 2 | 3 | 4 | ... |
Dividend ($) | 2 | 2 | 2 | 10 | 3 | ... |
After year 4, the dividend will grow in perpetuity at 4% pa. The required return on the stock is 10% pa. Both the growth rate and required return are given as effective annual rates.
What is the current price of the stock?
There are many ways to write the ordinary annuity formula.
Which of the following is NOT equal to the ordinary annuity formula?
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 321 foreign exchange rate, monetary policy, American and European terms
The market expects the Reserve Bank of Australia (RBA) to increase the policy rate by 25 basis points at their next meeting.
Then unexpectedly, the RBA announce that they will increase the policy rate by 50 basis points due to high future GDP and inflation forecasts.
What do you expect to happen to Australia's exchange rate in the short term? The Australian dollar will:
Question 554 inflation, real and nominal returns and cash flows
On his 20th birthday, a man makes a resolution. He will put $30 cash under his bed at the end of every month starting from today. His birthday today is the first day of the month. So the first addition to his cash stash will be in one month. He will write in his will that when he dies the cash under the bed should be given to charity.
If the man lives for another 60 years, how much money will be under his bed if he dies just after making his last (720th) addition?
Also, what will be the real value of that cash in today's prices if inflation is expected to 2.5% pa? Assume that the inflation rate is an effective annual rate and is not expected to change.
The answers are given in the same order, the amount of money under his bed in 60 years, and the real value of that money in today's prices.
What is the correlation of a variable X with a constant C?
The corr(X, C) or ##\rho_{X,C}## equals:
Question 710 continuously compounding rate, continuously compounding rate conversion
A continuously compounded monthly return of 1% ##(r_\text{cc monthly})## is equivalent to a continuously compounded annual return ##(r_\text{cc annual})## of:
The symbol ##\text{GDR}_{0\rightarrow 1}## represents a stock's gross discrete return per annum over the first year. ##\text{GDR}_{0\rightarrow 1} = P_1/P_0##. The subscript indicates the time period that the return is mentioned over. So for example, ##\text{AAGDR}_{1 \rightarrow 3}## is the arithmetic average GDR measured over the two year period from years 1 to 3, but it is expressed as a per annum rate.
Which of the below statements about the arithmetic and geometric average GDR is NOT correct?