Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

problem  prepare a short essay of 350-400 words for each of the following problems. Where possible, illustrate with an appropriate ex in your answer. You must support your discussion with appropriate references.

  •    'Risk aversion implies only risk-free investments will be undertaken by corporate managers'. Critically evaluate             this statement (indicate whether you agree or disagree in your answer).
  •    What is the distinction between nominal and real interest rates? Why is this distinction important?
  •     describe why evaluating mutually exclusive projects with IRR and NPV methods can be problematic.

problem                                                                   

  •  John has invented a new household device that would earn him $10,000 per annum for the next 10 years. Given a rate of interest of 8% per year, would John be willing to sell his invention today for $100,000?
  •  An investment will pay $200 at the end of each of the next 3 years, $300 at the end of year 4, $500 at the end of year 5 and $500 at the end of year 6. Given that other investments of equal risk earn 10% per annum, find out the present value and future value of this investment.
  •   You intend to invest into a fund for a period of 10 years. Find the interest rate at which regular deposits of $1,000 will accumulate to $25,000 at the end of the investment period. The deposits are made at the end of every year. Estimate the interest rate using the interpolation method.

problem                                                                                          

 

The Crystal Glass Company is proposing the construction of a new plant in east Brisbane. The plant has an annual capacity of 100,000 tonnes and will cost $100 million to build. Profits on the plant will be taxed at a rate of 30 per cent. The company expects its new plant to produce 90,000 tonnes of plate-glass per year. The annual revenues of $59.4 million based on an anticipated selling price of $660 per tonne will allow the company to gain 12 per cent market share in the first year of operation. Fixed costs are expected to average $12 million annually while variable costs are estimated to be around $140 per tonne. The plant will be fully depreciated on a straight-line basis over ten years, with an estimated salvage value of $2 million at the end of the project. The required rate of return on the project is taken as 12 % per year due to the high degree of systematic risk associated with a cyclical product like plate-glass.

find out the NPV of the project and describe if the company should go ahead with the proposed project.

problem                                                                                       

Western Communications Ltd's bonds will mature in five years with a total face value of $50 million, paying a half yearly coupon rate of 10% per annum. The yield on the bonds is 15% per annum. The market value for the company's preference share is $5.0 per unit while the ordinary share is currently worth $3.0 per unit. The preference share pays a dividend of $0.5 per share. The beta coefficient for the ordinary share is 1.2 and retained earnings are expected to be more than sufficient to fund the ordinary equity component of any new investment. The market risk premium is estimated to be 13% per annum and the risk-free rate is 4% per annum. The company is subject to a 30% corporate tax rate. The balance sheet values for bond and equity are shown below:

 

$ (Million)

Bonds

$50

Equity:

 

preference shares (200,000 units)

$3

Ordinary shares (10 million units)

$15

a.   describe the three steps involved in the calculation of cost of capital for Western Communications.

b.   find out Western Communications' after-tax weighted average cost of capital.

c.    Western Communications is considering raising more capital for a new project. Should the company use more equity or debt? In your answer, discuss the effect of using more equity or

debt on the company's cost of capital.                                                      

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M946

Have any Question? 


Related Questions in Basic Finance

1 describe a 2 x 2 x 3 factorial design how many

1. Describe a 2 x 2 x 3 factorial design. How many independent variables are involved, and how many levels are there of each variable? How many experimental conditions are in a 2 x 2 x 3 factorial design? 2. Distinguish ...

1 name the principal types of mortgage-related securities

1. Name the principal types of mortgage-related securities. What are the differences between them? 2. There are several ways that mortgages can be sold in the secondary market. Choose two and compare and contrast their l ...

1 selecting a bank steve just received his first paycheck

1. Selecting a Bank. Steve just received his first paycheck and wants to open a checking account. There are five banks in his hometown. What factors should Steve consider when choosing a bank? 2. Influence of Interest Ra ...

A project has the following incremental cash flows for

A project has the following incremental cash flows for years zero through year 5, respectively: -$2,500, $800, $600, $700, $400 and $300. If the firm's cost of capital is 8%, according to the IRR decision rule, should th ...

1 what are forward rates of interest how are they

1. What are forward rates of interest? How are they determined? What do they have to do with indexes used to adjust ARM payments? 2. Distinguish between the initial rate of interest and expected yield on an ARM. What is ...

If a company has a degree of financial leverage of 20 what

If a company has a degree of financial leverage of 2.0, what is the expected effect of a 2% increase in operating earnings to the earnings to owners? How may using debt financing increase the governance of a company? Exp ...

Why do higher interest rates lead to higher call option

Why do higher interest rates lead to higher call option prices but lower put option prices? Suppose a European put price exceeds the value predicted by put-call parity. How could an investor profit? Demonstrate that your ...

1 what is behavioral research what are its fundamental

1. What is behavioral research? What are its fundamental goals and limitations? Why is learning about behavioral research important? 2. In what ways is behavioral research similar to and different from research in the na ...

Percy motors has a target capital structure of 40 of debt

Percy motors has a target capital structure of 40% of debt and 60% of common equity, with no preferred stock. The pre tax cost of debt is 9% and it's corporate tax rate is 40%. Percy CFO estimate that the companys WACC A ...

1 list in order the major sections that all research papers

1. List in order the major sections that all research papers must have. 2. What is the purpose of the introduction of a paper? 3. When presenting the results of statistical analyses, what information should be presented? ...

  • 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

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen