Finance Answers

Discuss TWO drawbacks of using payback period method to evaluate projects

Tanjong Inc. is considering two mutually exclusive projects, A and B. Project A costs
RM95,000 and is expected to generate RM65,000 in year one and RM75,000 in year
two. Project B costs RM120,000 and is expected to generate RM64,000 in year one,
RM67,000 in year two, RM56,000 in year three, and RM45,000 in year four. Tanjong
Inc.'s required rate of return for these projects is 10%. Calculate the profitability index
for Project A and Project B. Which project is better?

Dunia Construction Co. (DCC) is considering a new inventory system that will cost
RM750,000. The system is expected to generate positive cash flows over the next
four years in the amounts of RM350,000 in year one, RM325,000 in year two,
RM150,000 in year three, and RM180,000 in year four. DCC's required rate of return
is 8%.
i. What is the net present value of this project?
ii. What is the internal rate of return of this project?
iii. What is the modified internal rate of return of this project?

Fendy purchased 800 shares of Grandsports’ stock at RM3 per share on 1/1/12. He
sold the shares on 12/31/12 for RM3.45. Grandsports’ stock has a beta of 1.9, the
risk-free rate of return is 4%, and the market risk premium is 9%. What is Fendy's
holding period return?

Dynamite Industries paid a dividend of RM1.65 for its common stock yesterday. The
dividends of company are expected to grow at 9% per year indefinitely. If the risk free
rate is 3% and investors' risk premium on this stock is 8%, what is the estimate value
of Dynamite Industries stock 2 years from now?

The price of Dwayne Corporation stock is expected to be RM68 in 5 years. Dividends
are anticipated to increase at an annual rate of 10 percent from the most recent
dividend of RM1.00. If your required rate of return is 15 percent, how much are you
willing to pay for Dwayne stock now?

Sweatshirt Inc’s ROE is 20%. It’s dividend payout ratio is 70%. The last dividend, just
paid, was RM2.00. If its dividends are expected to grow at the company's internal
growth rate indefinitely, what is the current value of the company's common stock if
its required return is 18%?

Sweatshirt Inc’s ROE is 20%. It’s dividend payout ratio is 70%. The last dividend, just
paid, was RM2.00. If its dividends are expected to grow at the company's internal
growth rate indefinitely, what is the current value of the company's common stock if
its required return is 18%?

In 2000 Jengka Inc. issued bonds with an 8 percent coupon rate and a RM1,000 face
value. The bonds will mature on March 1, 2025. If an investor purchased one of
these bonds on March 1, 2012, determine the yield to maturity if the investor paid
RM1,100 for the bond.

Power of Tower Inc. has bonds that mature in 6½ years with a par value of RM1,000.
They pay a coupon rate of 9% with semiannual payments. If the required rate of
return on these bonds is 11% what is the bond's current value?