Finance Answers

A free lunch?: “We will install new HVAC equipment for you, absolutely free!! Just signa three-year contract to split 50/50 any savings the equipment generates on the use of equipment plus pay for a service contract for the equipment’s maintenance. We will takeout the loan for the equipment and installation and pay off the loan with our share of the savings. After three years, the equipment is yours! You’ll only be giving us some of the money you are paying to the power company for electricity. The service contract for the equipment is $15,000 per year, but think of your peace of mind!” Evaluate if this is a free lunch or if there is a catch somewhere based on other financial data available. What data would you need? What evaluation criteria would you choose?

Suppose that the rate of return on the market portfolio is 13% and the risk-free rate is 3%. Consider a
stock with  = 1.2. The firm is expected to have no earnings for three years (E1 = E2 = E3 = 0), and
then 20 earnings-per-share for two years (E4 = E5 = 20). After that, earnings are expected to grow at a
constant annual rate of 8%. If the retention ratio (i.e. the fraction of earnings which is retained and not
paid out as dividends) is 75% in all periods, find the fundamental value of the stock. Determine what
would happen to the fundamental value in each of the following cases: (i) the asset  falls to 1, (ii) the
earnings growth rate rises to 10%. Treat each case separately, and briefly discuss your findings.

Using linear trend analysis find the trend line for number of covid 19 cases in Delhi and forecast for next 3 days.Also compute the Mean Square Error

a. THE U.S. ECONOMY IS GROWING FASTER THAN THAT OF JAPAN. THE FASTER GROWTH RATE IN THE U.S. SHOULD CAUSE THE VALUE OF THE DOLLAR TO DEPRECIATE AGAINST THE YEN, EVERYTHING ELSE BEING EQUAL. EXPLAIN. (20 MARKS)

b. A ONE-YEAR JAPANESE SECURITY IS CURRENTLY YIELDING 5%. FURTHERMORE, IT IS EXPECTED THAT THE EXCHANGE RATE BETWEEN THE DOLLAR AND THE YEN IS CHANGING FROM 98 YEN TO THE DOLLAR, TO 95 YEN TO THE DOLLAR OVER THE NEXT YEAR. TO INVEST IN U.S. SECURITY RATHER THAN JAPANESE SECURITY, YOU WOULD NEED A RETURN AT LEAST EQUAL TO WHAT VALUE? (20 MARKS)

c. WHAT DOES THE NOMINAL INTEREST RATE PARITY STATE? WOULD THE CONDITION BE VIOLATED IF NOMINAL INTEREST RATES IN THE DOMESTIC AND FOREIGN COUNTRY WERE DIFFERENT ON TWO SECURITIES THAT WERE IDENTICAL IN ALL ASPECTS? A CURRENCY PREMIUM WOULD LEAD TO A MODIFICATION OF THE NOMINAL INTEREST RATE PARITY CONDITION. WHY? (20 MARKS)

how does the government incentives people to save for retirement

Suppose a company wishes to issue 12% preference shares at N$1 each. The preference shares currently trade at 85.75 cents and floatation costs are 5 cents per share. Determine the cost of preference shares.

A one-year Japanese security is currently yielding 5%. Furthermore, it is expected that the exchange rate between the dollar and the yen is changing from 98 yen to the dollar, to 95 yen to the dollar over the next year. To invest in U.S. security rather than Japanese security, you would need a return at least equal to what value?

a. The U.S. economy is growing faster than that of Japan. The faster growth rate in the U.S. should cause the value of the dollar to depreciate against the yen, everything else being equal. Explain.

Taeh Company has following financial information:
- Total Assets: Rp 2 Billion
- EBIT: Rp 600 Million
- Fixed Assets: Rp 1 Billion
- Short Term Debt: Rp 550 Million
- Book value of equity: Rp 1.2 Billion
- Accumulated retained earnings: Rp200 Million
- Sales: Rp1.8 Billion
- Stock Price: Rp1,200
- Shares outstanding: 1,100,000
According to financial distress theory, give your argument about the company financial condition? Why do we need to analyse the financial distress of a company?

Discuss why homogenous expectations a bout probability distribution of expected returns is a critical in CAPM (6 marks)
The following details relates to three portfolios held by Uzima Fund managers.
Portfolio
Expected Return
Beta Factor
Variance

W
16.5%
1.3
16

X
13.5%
0.8
4

Y
14.5%
1.1
9

The risk free rate is 5%

Evaluate the performance of the portfolios using appropriate measures. (4mks)