Finance Answers

Explain the way Indian Capital Markets is organized. Over the last 3 decades various reforms have taken place to make the capital markets in India more and more structured and scam-free. Explain any five such significant reforms.

1.     Sky, Inc. paid a dividend of $4.00 per share on its common stock yesterday. Dividends are expected to grow at a constant rate of 10% for the next three years, at which point the dividends will begin to grow at a constant rate indefinitely. If the stock is selling for $40 today and the required return is 11%, what it the expected annual dividend growth rate after year three? Please share details.

1.     FET’s preferred stock is selling at $44 on the market and pays an annual dividend of $3.20 per share.

a.     What is the expected rate of return on the stock?

b.     If an investor's required rate of return is 10%, what is the value of the stock to that investor?

c.     Considering the investor's required rate of return, does this stock seem to be a desirable investment?

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1.     SOSU, Inc has before tax income this year is $900,000. The company’s payout ratio is 40%. The company's common equity currently has a book value of $5,000,000. They just paid a dividend of $1.87, and the required rate of return on this stock is 10%. Compute the value of this stock if dividends are expected to continue growing indefinitely at the company's internal growth rate. Tax rate = 28%.

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1.     Let’s assume that you are going to purchase a common stock that paid a dividend of $1.50 yesterday. Expected growth rate of this stock will be 12% per year for the next 2 years, and then 7% per year forever. How much should the investors pay for this stock today if they require a 12 percent rate of return?

1.     Resume Inc. preferred stock has a 4% stated dividend percentage, and a $100 par value. What is the value of the stock if your required rate of return is 7% per year?

3. The following information is given with respect to the ratio's of two companies Aman Ltd Roger Ltd

Current ratio 2:01 1.60:1 Quick Ratio 1.35:1 1:01 Return on investment 15% 13% Debt Equity Ratio 2.5:1 1:01

a. Define the concepts of Current and Quick ratio’s and also, reflect on your understanding towards the financial performance of the companies by looking to the above information (2marks for defining and 3 marks for interpretation and reasoning) (5 Marks

b. Define the terms- Return on Investment and Debt equity ratio and also, reflect on your understanding towards the financial performance of the companies (2marks for defining and 3 marks for interpretation and reasoning) (5 Marks

BMX Ltd. has asked you to determine its current weighted average cost of capital (WACC) and has provided the following information.

BMX has 1 million common shares outstanding that are currently trading at a price of K525 and are expected to pay a dividend of K75 per share this year. The company also has a single K15,000,000 market value long-term debt issue outstanding. The bonds carry an 8% coupon rate. Investment analysts have indicated that BMX’s shares have a beta of 1.30. The market premium is 6.5% and the risk-free return is 2.5 percent. BMX is in the 35% tax bracket.

Required:

Determine BMX’s WACC under the assumption that BMX will finance new projects using returned earnings instead of issuing new common stock.                 

A company has long-term borrowings of K3,000,000 on which it pays interest at 6% per year. The equity capital consists of 500,000 of K10 each. The share premium account stands at K2,500,000 and retained earnings amount to K2,000,000. Its shares are feely traded on the stock exchange and buyers’ and sellers’ quotes have remained steady at K21 and K22 respectively. Some sales of shares have been recorded at K21.20. The company has paid a stable dividend of 10% for the last 10 years. The market price of debt is 8%. The company is expanding rapidly and requires an additional K4,000,000 long-term capital.

Required:

Compute the present weighted cost of capital.                                              

1 We have an IS-LM Model:

 C = 200 + 0.25(Y-T) 

I = 150 + 0.25Y – 1000i 

G = 250 

T = 200 

,    

;  

Derive IS curve both mathematically and graphically

Determine the slope of IS curve (di/dY)

Identify the shift variables of the IS curve

Derive aggregate demand curve both graphically and mathematically

Find equilibrium level of output and the interest rate

Derive the following multipliers

Determine the impact of simultaneous increase in government expenditure and money supply (such that ) on equilibrium output and the interest rate.