Finance Answers

List in (bullet points) the process you would follow when attempting an inflation and risk adjusted NPV

analysis. This includes cash flow identification and possible adjustments to cash

flows; also outline the most accurate discount rate to use.

Eggs Ltd., an egg producing farm, requires short term financing and are

consulting with you for advice on which financing option to choose to fund its

purchases of feed for its hens. An operations consultant determined that the

standard deviation of feed use on a monthly basis is 33%, with January feed use

being the lowest at 1 ton and November being the highest at 2 tons. The farm

manager has found two options, a revolving credit facility at a rate of 5% per

annum with interest payable on the balance of the facility at the end of every

month OR a one- year renewable loan at a rate of 4% payable as part of the

monthly repayments on the loan.

Which loan would you advise the company to take?

(No calculations are required in this answer, though they are permissible.

Staff your answer with a brief argument for the option you reccomend)

Tigers Ltd. sells tiger related paraphernalia and has been in operation since 2011.

The company is trying to estimate its future sales. Its past sales were as follows:

(All values in R millions)

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

5 7 9 10 11 15 16 23 22 21

The company hired a business consultant who performed a regression analysis to

estimate its future sales which yielded the following equation:

Y = 2.1x + 2.5 (R^2 = 0.93)

The consultant indicated that replacing 11 into the equation should yield the next

year’s sales estimate, 12 for the year thereafter and so on. The estimate for 2021

is R25.6 million.

One of the larger store managers indicated that they feel that it is overoptimistic

as his store sales’ has been flat over the past two years.

Required:

Briefly advise the management of Tigers Ltd. on the objective forecasting

technique used and argue who is correct in this case (support your argument with

facts from the question and theory).

Factors which contributes to Currency appreciation

Below are the returns for two assets;

State of nature

r1

r2

probability

Weak growth

15%

15%

1/3

Strong growth

30%

12

1/3

Very strong growth

45%

9

1/3

Expected returns

30%

12

total    1.0

Calculate the two variances and Cov (r1, r2). If assets 1 and 2 are combined 50-50 into a portfolio, what is the variance of this portfolio? Show your calculations.

Mary decided to begin saving towards the purchase of a new car in 5 years. If Mary put $500 at the end of each of each 6-month period for 5 years and the account paid 6 percent compounded semiannually. How much will Mary accumulate after 5 years? Note: Mary is only making 10 payments, with first payment is six months from today and the interest is compounded semiannually.

IBM's debt ratio for 2010 is 79.6%. This means that IBM has ______.

1. 79.6% cents of assets available for each R1 of its liabilities
2. 79.6% of non-current assets available for each R1ofnon- current liabilities
3. financed 79.6% of its debt with assets
4. financed 79.6%of its assets with debt

Rapula is the financial manager of Plastic Fantastic, a plastic container manufacturer. While doing the financial statement's, Rapula will need to calculate the return on owner's equity (ROE). In addition to net profit, Rapula will also require______ in order to calculate this ratio.

1. sales
2. gross profit margin
3. total assets
4. owner's equity.

In January 2021, Tesla Inc shares were priced at $860. The value of the company at

that stock price was $810 billion. The reported price earnings ratio TTM (Trailing

Twelve Month) ratio in the Financial Times at that date was 1,693. At the same date,

Volkswagen (VW) was worth €89 billion and had P/E (TTM) of 18.

In January 2021, 15 of the 25 investment analysts following Tesla had buy or hold

ratings on the stock and 10 had sell.

In finance terms, how can you justify Tesla’s stock price? It is a growth stock, but

how can you pay that price for growth?