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Finance
Assume that a firm is offered 2/10 net 30, indicating that if the account is settled in 10 days, the firm may keep a discount of 2%. If the discount is not taken, then the full amount is payable in 30 days.
3.1.1 Calculate the cost of foregoing the discount
3.1.2 Differentiate between the various aims of appraisal projects
3.1.1 Calculate the cost of foregoing the discount
3.1.2 Differentiate between the various aims of appraisal projects
Finance
A company is to invest with the following information.
Investment - R280 000
Scrap value - Nil
Expected life - 5years
Cost of capital - 12%
Cash profits end year 1 - R23 000. Cash Flow - R79 000
Cash profits end year 2 - R26 000. Cash Flow - R82 000
Cash profits end year 3 - R40 000. Cash Flow - R96 000
Cash profits end year 4 - R43 000. Cash Flow - R99 000
Cash profits end year 5 - R14 000. Cash Flow - R70 000
2.1 calculate the accounting rate of return
2.2 calculate the payback period in years, months and days
2.3 if payback cut off is 3 years, should the project be chosen and why
2.4 calculate the net present value of the project
2.5 should the project be accepted on the basis of NPV and why
Investment - R280 000
Scrap value - Nil
Expected life - 5years
Cost of capital - 12%
Cash profits end year 1 - R23 000. Cash Flow - R79 000
Cash profits end year 2 - R26 000. Cash Flow - R82 000
Cash profits end year 3 - R40 000. Cash Flow - R96 000
Cash profits end year 4 - R43 000. Cash Flow - R99 000
Cash profits end year 5 - R14 000. Cash Flow - R70 000
2.1 calculate the accounting rate of return
2.2 calculate the payback period in years, months and days
2.3 if payback cut off is 3 years, should the project be chosen and why
2.4 calculate the net present value of the project
2.5 should the project be accepted on the basis of NPV and why
Finance
Pukri Ltd is deciding whether to pay out R90000jn excess cash in the form of an extra dividend or a share repurchase. Current profits are R2,40 per share and the share sells for R20. Balance sheet before paying out the dividend.
Equity 240 000. Dept 160 000. Bank/Cash 90 000. Other assets 310 000. Evaluate each alternative by
1.1 calculating the number of shares in issue
1.2 the dividends per share
1.3.1 calculate the new share price
1.3.2 calculate the EPS
1.3.3 The price earnings ratio
Equity 240 000. Dept 160 000. Bank/Cash 90 000. Other assets 310 000. Evaluate each alternative by
1.1 calculating the number of shares in issue
1.2 the dividends per share
1.3.1 calculate the new share price
1.3.2 calculate the EPS
1.3.3 The price earnings ratio
Finance
On completion of her introductory finance course, Marla Lee was so pleased with the amount of useful and interesting knowledge she gained that she convinced her parents, who were wealthy alumni of the university she was attending, to create an endowment. The endowment is to allow three needy students to take the introductory finance course each year in perpetuity. The guaranteed annual cost of tuition and books for the course is $600 per student. The endowment will be created by making a single payment to the university. The university expects to earn exactly 6% per year on these funds.
a. How large an initial single payment must Marla’s parents make to the university to fund the endowment?
b. What amount would be needed to fund the endowment if the university could earn 9% rather than 6% per year on the funds?
a. How large an initial single payment must Marla’s parents make to the university to fund the endowment?
b. What amount would be needed to fund the endowment if the university could earn 9% rather than 6% per year on the funds?
Finance
Marian Kirk wishes to select the better of two 10-year annuities, C and D. Annuity C is an ordinary annuity of $2,500 per year for 10 years. Annuity D is an annuity due of $2,200 per year for 10 years.
a. Find the future value of both annuities at the end of year 10, assuming that Marian can earn (1) 10% annual interest and (2) 20% annual interest.
b. Use your findings in part a to indicate which annuity has the greater future value at the end of year 10 for both the (1) 10% and (2) 20% interest rates.
c. Find the present value of both annuities, assuming that Marian can earn (1) 10% annual interest and (2) 20% annual interest.
d. Use your findings in part c to indicate which annuity has the greater present value for both (1) 10% and (2) 20% interest rates.
e. Briefly compare, contrast, and explain any differences between your findings using the 10% and 20% interest rates in parts b and d.
a. Find the future value of both annuities at the end of year 10, assuming that Marian can earn (1) 10% annual interest and (2) 20% annual interest.
b. Use your findings in part a to indicate which annuity has the greater future value at the end of year 10 for both the (1) 10% and (2) 20% interest rates.
c. Find the present value of both annuities, assuming that Marian can earn (1) 10% annual interest and (2) 20% annual interest.
d. Use your findings in part c to indicate which annuity has the greater present value for both (1) 10% and (2) 20% interest rates.
e. Briefly compare, contrast, and explain any differences between your findings using the 10% and 20% interest rates in parts b and d.
Finance
To supplement your planned retirement in exactly 42 years, you estimate that you need to accumulate $220,000 by the end of 42 years from today. You plan to make equal, annual, end-of-year deposits into an account paying 8% annual interest.
a. How large must the annual deposits be to create the $220,000 fund by the end of 42 years?
b. If you can afford to deposit only $600 per year into the account, how much will you have accumulated by the end of the forty-second year?
Finance
Investors are evaluating two 6-year bonds at time t in an emerging financial crisis setting where
there is a strong likelihood of default. Assume the following values for the expected probability
of default (z) of the two bonds, issued respectively by companies A and B.
t+1 t+2 t+3 t+4 t+5 t+6
A 0.1 0.2 0.3 0.3 0.4 0.3
B 0 0.2 0.6 0.7 0.3 0.25
a. Assume both bonds are 6-year, 8% coupon, $1000 face value coupon bonds, each selling for
$1000. Calculate the yields on the two bonds. Which is higher?
b. Now assume a setting where all future interest rates are exogenously fixed at 6%; the prices
of the bond are now to be determined. What are the prices of bond A and B? Which is
higher?
c. With respect to (b) above, and taking both present value streams together, does there exist
some value for i that would make the price of Bond A equal to the price of Bond B?
there is a strong likelihood of default. Assume the following values for the expected probability
of default (z) of the two bonds, issued respectively by companies A and B.
t+1 t+2 t+3 t+4 t+5 t+6
A 0.1 0.2 0.3 0.3 0.4 0.3
B 0 0.2 0.6 0.7 0.3 0.25
a. Assume both bonds are 6-year, 8% coupon, $1000 face value coupon bonds, each selling for
$1000. Calculate the yields on the two bonds. Which is higher?
b. Now assume a setting where all future interest rates are exogenously fixed at 6%; the prices
of the bond are now to be determined. What are the prices of bond A and B? Which is
higher?
c. With respect to (b) above, and taking both present value streams together, does there exist
some value for i that would make the price of Bond A equal to the price of Bond B?
Finance
Suppose that five states reduce income taxes in a given year. You are interested in estimating whether the tax cut has increased saving, and you find that the saving rate for residents of these five states increased by 2 percent in the year after it was introduced. Can you reasonably conclude that the tax cut caused the increase in saving? How would you conduct a difference-in-difference analysis to estimate the impact on saving? What assumption must hold for the difference-in-difference analysis to be valid?
Finance
Consider two projects. The first project pays benefits of $90 today and nothing else. The second project pays nothing today, nothing one year from now, but $100 two years from now. Which project would be preferred if the discount rate were 0%? What if the rate increased to 10%?
Finance
Conifers Ltd, a tree relocation company, follows a stable plus special dividend policy. The company recently (2020) had earnings available to common shareholders of R500m on sales of R2b and has 250m shares outstanding. The company maintains a stable pay-out ratio of 5% and issues special dividends whenever its net profit margin exceeds 10%. Special dividends amount to all profits exceeding 50% of the amount after the stable dividend had been deducted.
Required:
Determine the total dividend that Conifers Ltd will pay per share in 2020.
Required:
Determine the total dividend that Conifers Ltd will pay per share in 2020.
