Fight Finance

Question 85  WACC, CAPM

A company has:

• 140 million shares outstanding.
• The market price of one share is currently $2.
• The company's debentures are publicly traded and their market price is equal to 93% of the face value.
• The debentures have a total face value of $50,000,000 and the current yield to maturity of corporate debentures is 12% per annum.
• The risk-free rate is 8.50% and the market return is 13.7%.
• Market analysts estimated that the company's stock has a beta of 0.90.
• The corporate tax rate is 30%.

What is the company's after-tax weighted average cost of capital (WACC) in a classical tax system?

(a) 13.18%

(b) 11.10%

(c) 12.50%

(d) 14.24%

(e) 15.00%

Question 164  implicit interest rate in wholesale credit

A wholesale store offers credit to its customers. Customers are given 60 days to pay for their goods, but if they pay immediately they will get a 1.5% 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 the 60th day. All of the below answer choices are given as effective annual interest rates.

(a) 0.0003

(b) 0.0878

(c) 0.0913

(d) 0.0948

(e) 0.0963

Question 542  price gains and returns over time, IRR, NPV, income and capital returns, effective return

For an asset price to double every 10 years, what must be the expected future capital return, given as an effective annual rate?

(a) 0.2

(b) 0.116123

(c) 0.082037

(d) 0.071773

(e) 0.06054

Question 651  future

Which of the following statements about futures is NOT correct?

(a) Futures quotes displayed on the exchange change continuously.

(b) Futures prices written in existing futures contracts are fixed, they do not change since they’re written in the legal contract.

(c) One year futures quotes equal the market’s expectation of the underlying asset price in one year. For this reason futures markets are a good predictor of the underlying asset prices.

(d) Futures prices can be calculated based on the spot price of the underlying asset compounded forward at the total opportunity cost of capital, less any storage costs and plus any income yields such as dividends.

(e) The futures price quote and the underlying asset's spot price will converge over time. At the future's expiry they’ll be equal.

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?

(a) Asset revaluation reserve.

(b) Foreign currency translation reserve.

(c) Retained earnings, also known as retained profits.

(d) Contributed equity, also known as paid up capital.

(e) General reserve.

Question 835  VaR, no explanation

A company has a 95% daily Value at Risk (VaR) of $1 million. The units of this VaR are in:

(a) Dollars ($).

(b) Dollars per day ($/day).

(c) Dollars per day squared ($/day^2).

(d) Dollars squared per day ($^2/day).

(e) Dollars squared per day squared ($^2/day^2).

Question 841  gross domestic product, government spending

The government spends money on:

• Goods and services such as defence, police, schools, hospitals and roads; and
• Transfer payments (also called welfare) such as the pension, dole, disability support and student support.

When calculating GDP (=C+I+G+X-M), the ‘government spending’ component (G) is supposed to include:

(a) Gross government spending on goods and services only.

(b) Gross government spending on transfer payments only.

(c) Net government spending which is goods and services expenditure less tax revenue.

(d) Net government spending which is transfer payments expenditure less tax revenue.

(e) Net government spending which is total expenditure (goods and services plus transfer payments expenditure) less tax revenue.

Question 911  money market

Which of the following is also known as 'commercial paper'?

(a) Bank accepted bill (BAB).

(b) Certificate of deposit (CD).

(c) Fixed coupon bond.

(d) Promissory note (PN)

(e) Treasury note or bill.

Question 974  foreign exchange rate, monetary policy, no explanation

Suppose the market expects the Bank of Japan (BoJ) to increase their short term interest rate by 15 basis points at their next meeting. The current short term interest rate is -0.1% pa and the exchange rate is 100 JPY per USD.

As expected, the BoJ announce that they will increase short term interest rate by 15 basis points.

What do you expect to happen to Japan’s exchange rate on the day when the announcement is made? The Japanese Yen (JPY) is likely to:

(a) Remain at 100 JPY per USD.

(b) Appreciate against the USD to be, say, 101 JPY per USD.

(c) Appreciate against the USD to be, say, 99 JPY per USD.

(d) Depreciate against the USD to be, say, 101 JPY per USD.

(e) Depreciate against the USD to be, say, 99 JPY per USD.

Question 990  Multiples valuation, EV to EBITDA ratio, enterprise value

A firm has:

2 million shares;

$200 million EBITDA expected over the next year;

$100 million in cash (not included in EV);

1/3 market debt-to-assets ratio is (market assets = EV + cash);

4% pa expected dividend yield over the next year, paid annually with the next dividend expected in one year;

2% pa expected dividend growth rate;

40% expected payout ratio over the next year;

10 times EV/EBITDA ratio.

30% corporate tax rate.

The stock can be valued using the EV/EBITDA multiple, dividend discount model, Gordon growth model or PE multiple. Which of the below statements is NOT correct based on an EV/EBITDA multiple valuation?

(a) The Enterprise Value (EV) is $2 billion and the asset value is $2.1 billion.

(b) The market capitalisation of equity is $1.4 billion and the stock price is $700.

(c) Gross debt is $0.7 billion and net debt is $0.6 billion (net of cash).

(d) Next year’s expected dividend per share is $28.

(e) The forward looking PE ratio is 15.