Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

problem 1:

Brandon Michael Chu of Henry Law & Yang Yi Capital Limited believes that earnings and dividends at Alua Amanova & Shuwen Wang Technologies (AST) will continue to grow at 12% per year for 20 years. After that growth will level off to 5% for the indefinite future. The dividend just paid was $4 per share and the required rate of return on this stock is 12%.

a. What is the value of AST stock?

b. Suppose AST is currently trading at $120 per share. Expected D1 = $4.80. After that dividends will grow at 12% per year for ? number of years, then after dividends will grow at 5% per year forever. Required rate of return is 12%. How many years of growth at 12% is the market predicting?

problem 2:

Wing Yin Tsui, CEO of Lian Huang & Wong Bin Dean Hwang Manufacturing Limited is considering a four year project. The project requires an initial investment of $10,000,000 to buy new equipment. The equipment will be depreciated straight line to zero over the project’s life. The company believes it can generate $5,000,000 in pretax revenues in year 1. Revenues will increase at 20% per year. Total pretax operating cost would be 40% of the pretax revenues. Net working capital will be 20% of the pretax revenue for the year. Net working capital will be fully recovered at the end of the project. Revenues and operating costs will occur at the end of the year and investment in net working capital will be made at the beginning of the year. The tax rate is 40% and the discount rate is 12%.

a. What is the NPV of the project?

b. Now compute the project’s NPV assuming the project is abandoned after one year. The equipment will be salvaged for $8,000,000. Any gain or loss due to selling the equipment for other than the book value will create taxable gain/loss.

problem 3:

Silvana Zhang of Sajjad Jafri & Geopeng Li Limited is considering purchasing a new widget making machine. She would like to know the maximum price she should pay for the new machine.

1. The new machine will replace the existing machine, which has a current market value of $1,000,000.

2. New machine will reduce before tax operating cost by $300,000 per year for 15 years.

3. The old machine is expected to last for another 10 years and will have a salvage value of $100,000 at the end of 10 years.

4. The new machine is expected to last for 15 years and will have a salvage value of $200,000. CCA rate is 20%, tax rate is 30%, and the required rate of return is 15%

problem 4:

Benjamin Tang currently has holdings in the following three companies:
                                                                           E(R)            σ               β
Vivian Tam & Yuanyuan Wang Technologies (X)            14%           16%          2.0
Vivien Wang & Danny Dong Ltd. (Y)                            12%           14%          1.6
Omar Salahuddin & Philip Viegas Inc. (Z)                      10%            11%          1.2
Coefficient of Correlation                                        ρxy =-0.4    ρxz = 0.6    ρyz = -0.7

a. What would be the expected return, standard deviation, and β for the following portfolios:

Portfolio A $20,000 in X and $30,000 in Y?

Portfolio B $35,000 in Y and $15,000 in Z?

Which one is the better portfolio and why?

b. Assuming normal distribution, determine the range within which approximately 95% of the portfolio A’s returns will fall?

problem 5:

Yang Su is considering the following information on two stocks:
                                                                                    Rate of Return
State of Economy             Probability                  Catherine Lam Inc.(A)      David So Ltd(B)
Recession                           0.30                                    0.08                            -0.20
Normal                                0.50                                    0.40                              0.15
Boom                                  0.20                                     0.20                              0.42

The market risk premium is 8% and the risk free rate is 6%. Which stock has the most systematic risk? Which one has the most unsystematic risk? Which stock is riskier? describe.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M91959

Have any Question? 


Related Questions in Basic Finance

Q1 an on-line retailing firm conducts a study into the

Q1. An on-line retailing firm conducts a study into the number of on-line purchases of footwear made during all of last year. The study wants to determine the proportion of Australians over the age of 25 who purchase foo ...

Consider a country where the level of excess reserves

Consider a country where the level of excess reserves fluctuates widely and unpredictably. Would such a country be a good candidate for a money growth rule to guide monetary policy? Explain your answer.

How the yield curve may respond to prevailing conditions

How the Yield Curve May Respond to Prevailing Conditions : Consider how economic conditions affect the default risk premium. Do you think the default risk premium will likely increase or decrease during this semester? Ho ...

Problemthe guidance system of a ship is controlled by a

Problem The guidance system of a ship is controlled by a computer that has three major modules. In order for the computer to function properly, all three modules must function. Two of the modules have reliabilities of .9 ...

You estimate that you will owe 40300 in student loans by

You estimate that you will owe $40,300 in student loans by the time you graduate. The interest rate is 4.25 percent. If you want to have this debt paid in full within ten years, how much must you pay each month? Atlas In ...

For a world in which international trade would be based

"For a world in which international trade would be based only on the differences featured in the Heckscher-Ohlin theory, the shift from no trade to free trade is like a zerosum game." Do you agree or disagree? Why?

Finance marketcompute average arithmetic average geometric

Finance Market Compute average arithmetic, average geometric, and standard deviation based on nominal returns. Compute average arithmetic, average geometric, and standard deviation based on real (in?ation adjusted) retur ...

Nbspq1 nbspgiven the following assumptions construct cash

Q1.  Given the following assumptions, construct cash flows on both a de-levered and leveraged basis.  Make sure to label each clearly.  Project involved is a petrochemical plant. Indicate whether you agree that it could ...

Conflicts of interest are a type of one of the problems

Conflicts of interest are a type of one of the problems created by asymmetric information. Describe the problem that can happen when an institution provides multiple services?

In 2005 when president bush announced ben bernankes

In 2005, when President Bush announced Ben Bernanke's appointment as Fed chair, the Dow Jones stock index jumped by more than 1 percent in a few minutes. a. Why do you think that happened? b. If the United States adopted ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate