Query 1. (This query has three sub-questions: (a), (b) and (c))
a) Sam simply gained a authorities lottery. His prize could be taken both within the type of a 20-year atypical annuity or as a lump sum that’s paid instantly. What idea might Sam apply to help him in selecting between the atypical annuity or the fast lump sum? Clarify how this evaluation will assist Sam in making a greater choice
b) “If a financial savings account has an APR (annual share charge) of 10%, then its EAR (efficient annual charge) should be larger than 10%.” Is that this assertion right or incorrect? Clarify your reply.
c) (c) Sam is planning to save lots of up for a visit to Italy in 5 years. He estimates that he’ll want $20,000 for this journey. Presently, Sam has $5,000 in a financial savings account paying three.6% yearly. He plans to make use of his present financial savings plus what he can save over the subsequent 5 years to finance this journey. How a lot cash ought to Sam save firstly of every 12 months over the subsequent 5 years to finance this journey?
Query 2. (This query has two sub-questions: (a) and (b))
(a) Your monetary supervisor is asking you to guage the extent of market effectivity for the Australian market. After performing some analyses within the Australian market, you imagine which you can make abnormally worthwhile trades by observing that the CEO of a sure firm all the time wears her crimson go well with on days when the corporate is about to launch constructive details about itself. Describe which type or types of market effectivity is/are constant along with your perception.
(b) The desk beneath supplies the details about two bonds:
Bond Par worth Time period to maturity Coupon charge
A $1000 three years 10% each year, paid semi-annually
B $1000 15 years 10% each year, paid semi-annually
(i) Suppose the market rate of interest is 6% each year for each bonds, with out performing any calculations, focus on whether or not these two bonds ought to promote at an identical costs or if one must be price greater than the opposite.
(ii) Will your reply in Half (i) be completely different if the market rate of interest is 10% each year for each bonds? Clarify.
(iii) Suppose the market rate of interest is eight% each year for each bonds, what costs do you acquire for every of those two bonds?
Query three. (This query has three sub-questions: (a), (b) and (c))
(a) Sam is evaluating two shares, Share A and Share B. He finds that the usual deviation of returns for each Share A and Share B is precisely the identical. He then makes the next two statements:
(i) “It will likely be detached for me to buy Share A or Share B, because the anticipated returns for each shares ought to all the time be the identical.” Do you agree or disagree with this assertion?
(ii) “If there’s one other share that has larger anticipated return than that of Share A and Share B, then its customary deviation of returns should even be larger than that of Share A and Share B as nicely.” Do you agree or disagree with this assertion? Clarify. (b) Classify every of the next occasions as a supply of systematic threat or unsystematic threat. Use one to 2 sentences to briefly justify your classification for every of the occasions.
(i) In March 2015, Former NAB banker Lukas Kamay was convicted of insider buying and selling and was sentenced to seven years and three months in jail.
(ii) Apple’ share value sunk by greater than 5% on the information of the loss of life of Steve Jobs.
(iii) The latest COVID-19 lockdowns in Sydney and Melbourne are inflicting safety costs across the Australia to fall precipitously.
(c) Primarily based in your latest analysis, there are six pharmaceutical firms engaged on a brand new COVID19 vaccine for the Delta-variant. As an investor, you will have the choice of investing in one in all them versus all six of them:
(i) Is your systematic threat prone to be very completely different? Why?
(ii) For those who determine to put money into all six pharmaceutical firms and type an funding portfolio accordingly, would you contemplate such funding portfolio is well-diversified?
Query four. (This query has two sub-questions: (a) and (b)) (a) The online money flows for 2 initiatives, A and B, are as follows:
Internet Money Flows
12 months Challenge A Challenge B
zero -$60,000 -$35,000
1 $45,000 $32,000
2 -$15,000 $17,000
three $60,000 -$5,000
(i) Are you able to make capital budgeting selections for the above initiatives primarily based on the IRR
(inside charge of return) technique? Clarify. (ii) Given a reduction charge of 10% p.a., calculate the NPV of the above initiatives.
(iii) Assuming you will have $60,000 to take a position, which one must be chosen? Clarify.
(iv) Will your reply in Half (iii) be completely different you probably have $100,000 to take a position and these two initiatives aren’t mutually unique? Clarify.
(b) Sky Tech is an organization that producing photo voltaic panels. The corporate is analysing the potential of introducing a brand new product, named ‘Photo voltaic-2022’, to the market. The ‘Photo voltaic-2022’ will undertake a brand new know-how of utilizing silicon photo voltaic modules. This new know-how might largely improve the facility conversion effectivity. The challenge is estimated to be of 5 years length. The corporate’s tax charge is 35%. The next is the extra details about the challenge:
(i) To provide this new product, Sky Tech must introduce a brand new manufacturing line. This manufacturing line requires an preliminary funding of $7,500,000 in mounted asset which is absolutely depreciated over the five-year lifetime of the challenge.
(ii) The anticipated annual gross sales variety of ‘Photo voltaic-2022’ is 20,000 items; the value is $680 per unit. Variable prices of manufacturing quantity to $330 per unit.
(iii) The introduction of the ‘Photo voltaic-2022’ may also lower the corporate’s gross sales of normal photo voltaic panels by 12,500 items per 12 months; the common photo voltaic panel has a unit value of $350 and unit variable value of $160.
(iv) To this point, Sky Tech had already spent $1,000,000 in analysis and improvement on the brand new silicon photo voltaic modules know-how.
Assess and justify whether or not or not every of the gadgets ((i) – (iv) above) must be thought of within the estimation of the incremental annual money move from operations for the ‘Photo voltaic-2022’ challenge.
Calculate the after-tax incremental annual money move from operations.
Query 5. (This query has two sub-questions: (a) and (b))
(a) You might be offered with the next details about Tesla Company:
• The corporate has 10 million atypical shares excellent, priced at $45 and with a beta of 1.35. The market threat premium is 9.5% p.a. and Treasury payments are yielding 2% p.a.
• There are 1.2 million desire shares excellent with a par worth of $100 and seven.2% dividend. The market value of the desire shares is $60.
• The corporate has 120,000 of semiannual coupon bonds excellent with $1,000 par worth. The bonds are promoting at 120% of par. The yield to maturity is 7.5% p.a. and the company tax charge is 35%.
What’s the Tesla’s after-tax WACC?
(b) You’re the supervisor of a financially distressed firm with $three.1 million in debt excellent that can mature in three months. Your organization at the moment has $three million invested in risk-free Australian Authorities Treasury payments that can pay $three.1 million in three months.
Assume that you’re supplied with a chance that entails promoting the $three million risk-free Treasury payments now and investing the proceed in a high-risk challenge, with a 30% chance of $6 million repay in three months, and a 70% chance of $1 million repay in three months. For those who had been working the corporate within the shareholders’ greatest pursuits, will you push for the
acceptance of this high-risk challenge? Clarify your reasoning.
1. FV = PV(1 + ??)
2. FV = PV(1 + ??/??) ×
three. PV =
four. Efficient Annual Charge = 1 + – 1
5. FV of an atypical annuity = ???? ×
6. FV of an annuity due = ???? × × (1 + ??)
7. PV of an atypical annuity = × 1 –
eight. PV of an annuity due = × 1 – × (1 + ??)
9. PV of a perpetuity =
10. PV of a rising perpetuity =
11. CF of an atypical annuity =
12. Single interval realized return on a dividend paying inventory =
13. Anticipated return of n observations = E(RAsset) =E(R) = (R1 + R2 + R3 + … + Rn)/n
14. ???????????????? (?? – ??(??)) )
15. ???????????????? ??????????????????(??) = ?? = ????????????????(??)
16. Capital Asset Pricing Mannequin: ??(?? ) = ?? + ?? ??(?? ) – ??
17. Portfolio anticipated return: ?? ?? = ?? ??(??
) + ?? ??(?? ) + … + ?? ??(?? )
18. Portfolio beta: ?? = ?? ?? + ?? ?? + … + ??
19. Fixed dividend progress mannequin: P = ??
20. Annual coupon bond value = 1 – +
( ) (
21. Semi – annual coupon bond value = 1 –
/ ) (
22. NPV = ??????
23. Payback interval=Years to get better value + Remaining value to get better
Money move in the course of the 12 months
24. Price of fairness primarily based on rising dividend: ??
= D1 + ??
25. Price of fairness (CAPM): ?? = ?? + ?? ??(??
) – ??
26. WACC with out desire shares: ???????? =
?? (1 – ?? ) + ??
27. WACC with desire shares:
?? + ??
???????? = ?? (1 – ?? ) +
28. Required return on levered fairness: ?? = ?? + (?? – ?? )