Finance Answers

1) If a firm borrows £20 million for one year at an interest rate of 4%, approximately what is
the present value of the interest tax shield? Assume a 20% marginal corporate tax rate.

2) What is the standard deviation of the portfolio that consists of A and B shares?

Firm Expected Return Standard Deviation Percentage of portfolio Correlation
A 20% 40% 60% 0.2
B 10% 20% 40% 0.2

Tax agents have a responsibility to ensure that their clients’ returns are prepared within the established timelines. What role do timelines have in satisfying client expectations and how would you develop a timeline to fulfil your obligations? 120–150 words.

1) An investor was originally expecting a 16% return on her portfolio with beta of 1.25 before
the market risk premium decreased from 8% to 6%. Given this change, what return will
now be expected on the portfolio?

2) John PLC is financed by debt and equity. The market value of its debt is £8 million and
its equity £12 million. If John’s cost of debt is 6% and the required rate of return on
equity is 12%, its Weighted Average Cost of Capital (WACC) is (assume there is no tax):

Stock A is currently earning a return of 10% and has a beta of 0. 75, whilst Stock B is
earning 15% and has a beta of 1.5. The rate of return on the market is 12% and a risk
free asset yields 5%. According to the CAPM:
a. Stocks A and B are earning equilibrium returns
b. Stock A is overpriced and stock B is underpriced
c. Stock A is underpriced and stock B is overpriced
d. Socks A and B are overpriced

.Firm A has a value of £200 million and Firm B has a value of £140 million. Merging the
two companies would allow cost savings with a present value of £30 million. If Firm A
purchases Firm B for £150 million, how much do the shareholders of firm A gain from this
merger:
a. £20 million
b. £30 million
c. £40 million
d. £50 million

Jan is risk-averse, but wants to earn the best rate of return in less than two years. Which investment would MOST LIKELY meet Jan's need?

Place the following events in the order they might occur once rent control is implemented in a crowded, impoverished neighborhood.
Drag the items below into the box above in the correct order, starting with the first item in the sequence.
Apartment rental prices are capped by the local government.
Property owners receive less income from their properties.
Many apartment buildings become dilapidated.
Property owners cannot afford to maintain buildings properly.

Q6)Company versus Project Discount Rates.Geothermal WACC is 11.4 percent. ExecutiveFruit’s WACC is 12.3 percent. Now Executive Fruit is considering an investment in geothermalpower production. Should it discount project cash flows at 12.3 percent? Why or whynot?

True or false & explain: Under a free market, in which the self-adjusting mechanism operates efficiently, aggregate demand shocks generate real effects in the short-and long-run.

Last year Rocco Corporation's sales were $700 million. If sales grow at 6% per year, how large (in millions) will they be 5 years later?

Would someone who owns a car dealership Most Likely prefer that the government by bonds or sell them? Explain