The equations for Net Income (NI, also known as Earnings or Net Profit After Tax) and Cash Flow From Assets (CFFA, also known as Free Cash Flow to the Firm) per year are:
###NI=(Rev-COGS-FC-Depr-IntExp).(1-t_c)###
###CFFA=NI+Depr-CapEx - \varDelta NWC+IntExp###
For a firm with debt, what is the formula for the present value of interest tax shields if the tax shields occur in perpetuity?
You may assume:
- the value of debt (D) is constant through time,
- The cost of debt and the yield on debt are equal and given by ##r_D##.
- the appropriate rate to discount interest tax shields is ##r_D##.
- ##\text{IntExp}=D.r_D##
An industrial chicken farmer grows chickens for their meat. Chickens:
- Cost $0.50 each to buy as chicks. They are bought on the day they’re born, at t=0.
- Grow at a rate of $0.70 worth of meat per chicken per week for the first 6 weeks (t=0 to t=6).
- Grow at a rate of $0.40 worth of meat per chicken per week for the next 4 weeks (t=6 to t=10) since they’re older and grow more slowly.
- Feed costs are $0.30 per chicken per week for their whole life. Chicken feed is bought and fed to the chickens once per week at the beginning of the week. So the first amount of feed bought for a chicken at t=0 costs $0.30, and so on.
- Can be slaughtered (killed for their meat) and sold at no cost at the end of the week. The price received for the chicken is their total value of meat (note that the chicken grows fast then slow, see above).
The required return of the chicken farm is 0.5% given as an effective weekly rate.
Ignore taxes and the fixed costs of the factory. Ignore the chicken’s welfare and other environmental and ethical concerns.
Find the equivalent weekly cash flow of slaughtering a chicken at 6 weeks and at 10 weeks so the farmer can figure out the best time to slaughter his chickens. The choices below are given in the same order, 6 and 10 weeks.
Three years ago Frederika bought a house for $400,000.
Now it's worth $600,000, based on recent similar sales in the area.
Frederika's residential property has an expected total return of 7% pa.
She rents her house out for $2,500 per month, paid in advance. Every 12 months she plans to increase the rental payments.
The present value of 12 months of rental payments is $29,089.48.
The future value of 12 months of rental payments one year ahead is $31,125.74.
What is the expected annual capital yield of the property?
Which business structure or structures have the advantage of limited liability for equity investors?
A trader buys one December futures contract on orange juice. Each contract is for the delivery of 10,000 pounds. The current futures price is $1.20 per pound. The initial margin is $5,000 per contract, and the maintenance margin is $4,000 per contract.
What is the smallest price change would that would lead to a margin call for the buyer?
A Chinese man wishes to convert AUD 1 million into Chinese Renminbi (RMB, also called the Yuan (CNY)). The exchange rate is 6.35 RMB per USD, and 0.72 USD per AUD. How much is the AUD 1 million worth in RMB?
How much more can you borrow using an interest-only loan compared to a 25-year fully amortising loan if interest rates are 4% pa compounding per month and are not expected to change? If it makes it easier, assume that you can afford to pay $2,000 per month on either loan. Express your answer as a proportional increase using the following formula:
###\text{Proportional Increase} = \dfrac{V_\text{0,interest only}}{V_\text{0,fully amortising}} - 1###Question 821 option, option profit, option payoff at maturity, no explanation
You just paid $4 for a 3 month European style call option on a stock currently priced at $47 with a strike price of $50. The stock’s next dividend will be $1 in 4 months’ time. Note that the dividend is paid after the option matures. Which of the below statements is NOT correct?