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 explain the risk premium on a bond2 explain what is meant

1. Explain the risk premium on a bond. 2. Explain what is meant by the risk-return trade-off. 3. Explain how the yield curve can assist bond investors.

1 briefly discuss the three objectives for developing and

1. Briefly discuss the three objectives for developing and implementing performance measurement systems. 2. Compare and contrast the various metrics for product availability. Why is the order fill rate considered the mos ...

If you were using a full length centerline gage rod to

If you were using a full length, centerline, gage rod to measure DL, how much change would you expect to see at 2508F? 8. What DL from ‘‘before tightening'' would you expect to see at 2508F if you were using ultrasonics ...

A companys dec 31st year-end balance sheet showed 72000 of

A company's Dec. 31 st year-end balance sheet showed $72,000 of inventory. The company uses the perpetual inventory system. After reviewing the company's records, the auditor noted the following items which had not been ...

Statisticsa statistical post-mortem of subprime

STATISTICS A statistical post-mortem of subprime mortgages Subprime mortgages were prominent business news in 2007 and 2008 during the meltdown in the financial markets.  A subprime mortgage is a home loan made to a risk ...

1 deriving from the conclusion of proposition i what is the

1. Deriving from the conclusion of Proposition I, what is the crux of M&M Proposition II? What is the natural relationship between the required returns on debt and on equity that results from Proposition II? 2. In what w ...

1 why has real estate often been a key factor in corporate

1. Why has real estate often been a key factor in corporate restructuring? 2. Why might refinancing be considered an alternative to a sale-leaseback? 3. What factors might cause the highest and best use of real estate to ...

Marks inc expect a dividend of 520 per share in one year

Marks, Inc., expect a dividend of $5.20 per share in one year from now. The rate of return is 13% and the growth rate is 6.8%. How much would you be willing to pay for Marks' stock today? If the current market price of M ...

1 before 1933 there was no federal deposit insurance was

1. Before 1933, there was no federal deposit insurance. Was the liquidity risk faced by banks during those years likely to have been larger or smaller than it is today? Briefly explain. 2. Does the existence of reserve r ...

The mz mortgage company is issuing a cmo with three

The MZ Mortgage Company is issuing a CMO with three tranches. The A tranche will consist of $40.5 million with a coupon of 8.25 percent. The B tranche will be issued with a coupon of 9.0 percent and a principal of $22.5 ...

  • 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

No more pencils inc disburses checks every two weeks that

No More Pencils, Inc., disburses checks every two weeks that average $94,000 and take five days to clear. How much inter

Drawing on the prescribed text andor relevant academic

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

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