Finance Answers

Describe any 4capital market financial instruments as used in financial management.  

Suppose an investor is given an investment opportunity that will provide a future value of Kshs 50,000 when it matures at the end of two years. How much would an earning of Kshs 50,000 be at the end of 2 years, at a rate of 10 percent?

Morgan Stanley has a current cash flow (at time 0) of $3.4 m and pays no dividends. The present value of the company’s future cash flows is $14.6 m. The firm is entirely financed with equity and has 400,000 shares outstanding. Assume the dividend tax rate is zero.

a.   What is the share price of Morgan Stanley stock?

b.   Suppose the board of directors of Morgan Stanley announces its plan to payout 40% of its current cash flow as dividends to its shareholders. How can Andy, who owns 800 shares of Morgan Stanley stock, achieve a zero payout policy on his own?

As a finance manager of Kersot Enterprise Limited, where the Board of Trustees is reviewing the mix of the capital structure of the enterprise based on target value and has decided to raise 40 percent of new funds from long-term debt, 10 percent from preferred shares, and 50 percent from ordinary shares with components of 5.6, 10.5 and 15.7 respectively.

Estimate percentage of this BEST MIX for the enterprise and support the decision taken.        

Assume that MKU Enterprise Ltd sells a 500 KES bond that matures in 10 years. The annual interest payments are 45 KES and the net proceeds of the bond are Ksh. 478. Use the correct formula and the above given data to estimate before-tax-cost of bond.  

Reaping the returns example

When assessing risk, a rational investor will never use:

a. standard deviation of return

b. normal probability distribution as a general characteristic of financial market

c. variance of either return series or stock price series

d. probability of a loss

e. potential loss

When assessing risk, a rational investor will never use:

a. standard deviation of return

b. normal probability distribution as a general characteristic of financial market

c. variance of either return series or stock price series

d. probability of a loss

e. potential loss*

A share yields the following future dividends: 40 €, 20 €, 50 €. The opportunity cost of investment, as quantified by a finance practitioner is 7%. The share can be bought today for 200 € and is going to be sold for 250 €, after 3 years. The percentage value dividend yield and the net present value of this financial investment, are:

a. 159% and 250 €

b. 73% and 180 €

c. 34% and 120 €

d. 55% and 100 €

e. 25% and 120 €

Expected return is basically computed based on:

a . values of predicted returns and their attached probabilities

b. the geometric average of dividend yields

c. values of historical market prices times the market capitalization

d. the average value of GDP indexes

e. the variability of return