BUSS384 - Corporate Finance - Problem Set #1 Due by Wednesday‚ 15 October 2014 1. [10 points] Sydney Industries‚ Inc.‚ is considering a new project that costs $30 million. The project will generate after-tax (year-end) cash flows of $8 million for five years. The firm has a debt-to-equity ratio of 0.25. The cost of equity is 12 percent and the cost of debt is 7 percent. The corporate tax rate is 40 percent. It appears that the project has the same risk of the overall firm. Should Sydney undertake
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Assignment of corporate finance If we need to find Z score of Fu-Wang ceramic industry ltd. Then at first we should know the formula of Z score. The formula of Z score is Z = 3.3(EBIT/Total Assets) + 1.2(Net Working Capital/Total Assets) + 1.0(Sales/Total Assets) + .6(Market Value of Equity/Book Value of Debt) + 1.4(Accumulated retained earnings/Total Assets) Now we are going to determining the Z score of Fu-Wang ceramic industry ltd. In the year of 2010 As we know the formula of Z score below
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Overview of Relevant Formulas Corporate Finance (B40.2302) _________________________________________________________________________________________ 1. Present value of $1 to be received after t years at discount rate r: 2. Present value of annuity of $1 per year for t years at discount rate r: $1 (1 + r )t ⎡1 − (1 + r ) − t ⎤ ⎢ ⎥ × $1 r ⎣ ⎦ 1 ⎡ (1 + g )t ⎤ 3. Present value of growing annuity of $1 at rate g per year at discount rate r: ⎢1 − ⎥ × $1 r − g ⎣ (1 + r )t ⎦ $1 r 4. Present value
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Steven E. Shreve Stochastic Calculus for Finance I Student’s Manual: Solutions to Selected Exercises December 14‚ 2004 Springer Berlin Heidelberg NewYork Hong Kong London Milan Paris Tokyo Contents 1 1 Probability Theory on Coin Toss Space . . . . . . . . . . . . . . . . . . . . 7 2.9 Solutions to Selected Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1 1.7 Solutions to Selected Exercises . . . . . . . . . . . . . . . . . . . . . . . .
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Chapter 2 -CAPM: how risk affects return -Expected Return (on investment): mean value of its probability distribution of returns; greater the probability return will be below expected‚ greater the stand-alone risk -Risk Averse: he/she must be compensated for holding risky assets -Asset has 2 risk types: Diversifiable risk can be eliminated by diversification; market risk cannot be eliminated -Market risk measured by standard deviation of returns on portfolio consisting of all stocks -Relevant
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(excluding multiple-choice questions) Please‚ keep at least 4 decimal points while performing your calculations. Marks will be deducted for rough rounding!!! The exam consists of two parts and one bonus question and is counted out of 40 points. In case your total mark (including the bonus question) exceeds 40 points‚ you will be awarded only 40 points for this exam and no extra credits will be given for the remaining points. Note s to Grader: Please‚ do not double-punish students for the
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CORPORATE FINANCE 307 LITERATURE REVIEW Student Name / ID: Chay Yu Xi 15907811 Jacqueline Teo Hui Yun 15805054 Ting Heng Huat 14973837 Tutor: Leo Kee Chye Tutorial Day / Time: Monday / 2pm Table of Contents Abstract The Tech Bubble Introduction Lowering of Interest Rates Adjustable Rate Mortgage Securitization Mortgage Backed Securities Collateralized Debt Obligation Credit Default Swap Government Reaction and Policies Emergency TARP Repercussions
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CASE STUDY ON CASH BUDGETING Party Favours Limited (PFL) distributes party supplies and novelties through a network of independent‚ dedicated sales people across Canada. PFL plans to expand its network of sales distribution network into western Canada and consequently forecasts sales to total $5.6 million and $5.8 million in calendar years 2011 and 2012 respectively. PFL has been in operation for over ten years‚ and therefore has a strong understanding of the seasonal sales cycle that party
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Corporate Finance – Chapter 2 – Long Quiz 1 1) Marvelous Entertainment Group‚ Inc. had net income of $32.7 million in 2005. The firm paid no dividends. If there were no further changes to the stockholders ’ equity accounts‚ then _____ by $32.7 million. [ ] common stock must have increased √ [ ] retained earnings must have increased [ ] total stockholders ’ equity must have decreased [ ] capital surplus must have decreased [ ] the market value of the firm ’s stock must have
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* PV(CF) = CF/(1+r)t AKA PV = FV/(1+r)t * NPV = PV(CFs) – Investment = -C0 +C1/(1+r)+C2/(1+r)2+C3/(1+r)3+… = ∑(Expected CFt)/(1+r)t – Investment * Perpetuity – pays a fixed amount C per period forever * P(C‚r) = C/r requires cash flow to begin NEXT period. If begin now‚ then PV = C + C/r * Annuity – fixed stream of cash flows that has a final period t * A(C‚r‚t) = C/r [1-1/(1+r)t] * Growing Perpetuity – G(C‚r‚g) = C/(r-g) C is initial cash flow‚ r is discount rate
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