FEEDBACK TUTORIAL LETTER
|
|
- Jeremy Hampton
- 6 years ago
- Views:
Transcription
1 FEEDBACK TUTORIAL LETTER 2 nd SEMESTER 2017 ASSIGNMENT 1 MANAGERIAL FINANCE 4B MAF412S 1
2 Assignment 1 QUESTION 1 COMPANY A & B a) Co. A Co. B Net Operating Income 5,000,000 5,000,000 Less: interest -1,500,000 Available to shareholders 3,500,000 5,000,000 Taxation 28% -980,000-1,400,000 2,520,000 3,600,000 Value of Equity [NI/capitalisation rate] 25,200,000 36,000,000 Value of Debt 30,000,000 Value of company [Debs + shares] 55,200,000 36,000,000 or S = (EBIT - K d D) (l-t) K s A = (R5m - R1.5m) (.72) + D = R25.2m + R30m = R55.2m 0.10 B = (R5m - 0) (.72) + D = R36m + R0 m = R36m.10 b) V B = R5m(1 - t) = R3.6m = R36 million V A = R5m(1 - t) + Dt.10 = R3.6m + (R30m x 0.28) = R44.4m.10 Or Co. A Co. B Net Operating Income 5,000,000 5,000,000 Available to shareholders 5,000,000 5,000,000 Taxation 28% -1,400,000-1,400,000 3,600,000 3,600,000 Value of Firm = Value of Unlevered Firm + Debt tax shield Value of Equity [capitalisation rate 10%] 36,000,000 36,000,000 Value of Debt shield [Debt x tax rate] 8,400,000 - Value of company [Debs + shares] 44,400,000 36,000,000 2
3 or V A = V B + Dt = R36m + (R30m x 0.28) = R36m + R8.4m = R44.4m c) For co A k d = 5% (1 - t) = 5%(.72) = 3.6% k s = Income available for shareholders Market value of equity Co. A Net Operating Income 5,000,000 Available to shareholders 5,000,000 Taxation 28% -1,400,000 3,600,000 Value of Equity [capitalisation rate 10%] 36,000,000 Value of Debt shield [Debt x tax rate] 8,400,000 Value of company [Debs + shares] 44,400,000 Value of the Assets (V A ) 44,400, % Value of Debt -30,000,000 68% Value of Equity 14,400,000 32% k s = 2.520m = 17.5% 14.4m ka = 17.5% (14.4m) + 3.6% (30.0m) = 17.5% (0.32) + 3.6% (0.68) (44.4m) (44.2m) = 8.05% for co A For co B, k a = 10%. Neither company has an optimal capital structure; under the MM assumptions, the optimal capital structure would call for 100 percent debt, or as close to it as the company could get. 3
4 d) The addition of debt increases the covariance of equity returns with the market. The increased covariance implies higher risk and therefore the cost of equity increases. The increase in the cost of equity is more than offset by the tax subsidy effect of debt so that the WACC declines. e) What is 1% of the Equity? 1% 25,200, ,000 Income 1% 2,520,000 25,200 You sell your holdings in A for its market value 252,000 Lever yourself with debt equal to 1% 30,000, ,000 Total Funds 552,000 Purchase 1% of B's shares 1% 36,000, ,000 Income from new investment 1% 3,600,000 36,000 Less: After-tax Interest 4% 300,000-10,800 25,200 The new investment offers the same income, R25200 but we have saved R in capital ( ). Note: The cost of equity did not change as we increased the financial leverage. In practice, we would expect the cost of equity to increase as the firm s level of debt is increased. Question 2 (a) EPS (c) DPS (c) Payout ratio (%) Retention rate % % 100% 100% 100% 100% Growth in EPS (%) We use the dividend discount model (DDM) also called Gordon s Growth Model which you learnt last semester to find the value of the share: DDM: Po=D1/(ke g) 4
5 We determine the compound growth rate from the FV formula: FV = PV (1+r) n Which is substituted as: 140 = 122(1+r) 4 Therefore annual compound growth rate, r= (140/122) (1/4) -1 = 3.5% I accepted the use of the average annual growth: ( )/4 = 3.5% Coincidentally the rate is the same as the compound growth rate. Now, we determine the cost of equity, ke using the CAPM which you did last semester. ke=rf + (rm rf)β = 6% x 4 = 12% The expected dividend is 0.82, the required return is 12% and constant growth rate is 3.5%. therefore applying the DDM, the value of equity is: Po= 0.82/( ) Po=N$9.65 Alternative solution: If the company is able to achieve an investment return of 15%, then the growth rate will be higher. The company should achieve a growth in dividend equal to the growth in EPS. Applying the sustainable growth formula we can determine the future growth in earnings and dividends: Growth rate in earnings and dividends= Return x Investment rate = 15% x 41.4% = 6.214%p.a Therefore, Po = 0.82/( ) = N$14.17 (b) If future retentions are expected to be 50%, then our growth rate is higher than the 6.214% at 41% retention: Growth rate = 50% x 15% = 7.5% p.a. The next dividend will therefore be: 50% x 140 =70c Therefore Po= 70/(12%-7.5%) = N$15.56 D1 / (Ke-g) 5
6 i.e. (82c x 1.035) / ( ) = R : In practice, share prices are determined by the interplay of supply and demand for the shares, liquidity and market sentiment. In turn, these are fuelled by individual judgements (based on facts, and sentiment) as to the likely future dividends and prices and may not always be driven by the directors calculations of earnings and net present value. However, we would expect the share price in the long-term to reflect its intrinsic value which will be driven by the investment rate, the growth rate and the cost of equity. 6
7 Question 3 a) Degree of operating leverage DOL at N$1 mil sales level = Degree of financial leverage Q(p vc) Q(p vc) FC = (20 8) (20 8) = 1.5 DFL at N$ level of EBIT = EBIT EBIT I = N$ N$ = N$ N$ = 1.45 Combine leverage effect b) Earnings per share DTL = DOL x DFL = 1.5 x 1.45 = 2.18 Stock financing Debt financing Sales Variable costs ( ) ( ) Fixed operating costs( ) ( ) EBIT Less interest ( ) ( ) Profit before tax Income tax at 40% ( ) (82 000) Net income ) No. of shares EPS N$1.38 N$1.23 Combined leverage effect 7
8 Stock financing DTL = Q(p vc) Q(p vc) FC I = (20 4) (20 4) = N$ N$ = 2.9 Debt financing DTL = (20 4) (20 4) = N$ N$ = 3.90 c) The debt financing will have the greatest impact because it has a higher degree of total leverage than equity financing. Any example may be given, but the point is to show the percentage changes in EPS, not absolute EPS only. 8
FEEDBACK TUTORIAL LETTER ASSIGNMENT 1 SEMESTER MANAGERIAL FINANCE 4B [MAF412S]
FEEDBACK TUTORIAL LETTER ASSIGNMENT 1 SEMESTER 1 2018 MANAGERIAL FINANCE 4B [MAF412S] 1 Question 1 (20 Marks) The following are the statements of comprehensive income of Checkers Ltd and Choppies Ltd,
More informationMGT201 Financial Management Solved MCQs
MGT201 Financial Management Solved MCQs Why companies invest in projects with negative NPV? Because there is hidden value in each project Because there may be chance of rapid growth Because they have invested
More informationSolved MCQs MGT201. (Group is not responsible for any solved content)
Solved MCQs 2010 MGT201 (Group is not responsible for any solved content) Subscribe to VU SMS Alert Service To Join Simply send following detail to bilal.zaheem@gmail.com Full Name Master Program (MBA,
More informationTutorial Letter: May 2014 examination session. Financial Management 2 (FM202) Semester One 2014
Tutorial Letter: May 2014 examination session Financial Management 2 () Semester One 2014 Dear Student Please make note of the following key areas and notes pertaining to the Financial Management 2 Examination
More informationMGT201 Financial Management Solved MCQs A Lot of Solved MCQS in on file
MGT201 Financial Management Solved MCQs A Lot of Solved MCQS in on file Which group of ratios measures a firm's ability to meet short-term obligations? Liquidity ratios Debt ratios Coverage ratios Profitability
More informationTutorial Letter: May 2014 examination session. Financial Management 3 (FM303) Semester One 2014
Tutorial Letter: May 2014 examination session Financial Management 3 () Semester One 2014 Dear Student Please make note of the following key areas and notes pertaining to the Financial Management 3 Examination
More information3. What is leverage? The magnification of risk that is realized when we add fixed cost operations and financing to the corporation.
Chapter 13 Study Guide 1. What is the risk return value rule? If risk increases, investors want more returns, so new investors would pay a lower price. Risk up, required return up, value down 2. What is
More information600 Solved MCQs of MGT201 BY
600 Solved MCQs of MGT201 BY http://vustudents.ning.com Why companies invest in projects with negative NPV? Because there is hidden value in each project Because there may be chance of rapid growth Because
More informationTable of Contents. Chapter 1 Introduction to Financial Management Chapter 2 Financial Statements, Cash Flows and Taxes...
Table of Contents Chapter 1 Introduction to Financial Management... 1 22 Importance of Financial Management 2 Finance in the Organizational Structure of the Firm 3 Nature and Functions of Financial Management:
More informationCA- Intermediate Test Cost of Capital, Capital Structure & Leverages
CA- Intermediate Test Cost of Capital, Capital Structure & Leverages Maximum Time: 200 Minutes Total Marks: 100 Question 1: Solution: Calculation of arnings per share for three alternatives to finance
More informationQuestion # 1 of 15 ( Start time: 01:53:35 PM ) Total Marks: 1
MGT 201 - Financial Management (Quiz # 5) 380+ Quizzes solved by Muhammad Afaaq Afaaq_tariq@yahoo.com Date Monday 31st January and Tuesday 1st February 2011 Question # 1 of 15 ( Start time: 01:53:35 PM
More informationChapter 14 Capital Structure Decisions ANSWERS TO END-OF-CHAPTER QUESTIONS
Chapter 14 Capital Structure Decisions ANSWERS TO END-OF-CHAPTER QUESTIONS 14-1 a. Capital structure is the manner in which a firm s assets are financed; that is, the righthand side of the balance sheet.
More informationMGT201- Financial Management Solved by vuzs Team Zubair Hussain.
MGT201- Financial Management Solved by vuzs Team Zubair Hussain 1- Company ABC wants to issue more common stock face value Rs.10. Next year the Dividend is expected to be Rs.2 per share assuming a Dividend
More informationMGT201 Short Notes By
MGT201 Short Notes By http://www.vustudents.net 1- Company ABC wants to issue more common stock face value Rs.10. Next year the Dividend is expected to be Rs.2 per share assuming a Dividend growth rate
More informationFIN622 Solved MCQs BY
FIN622 Solved MCQs BY http://vustudents.ning.com Question # 1 of 15 Which of the following investment criteria does not take the time value of money into consideration? Simple payback method (page#34)
More informationBreak-even even & Leverage Analysis
Break-even even & Leverage Analysis Timothy R. Mayes, Ph.D. FIN 330: Chapter 12 1 Types of Costs Essentially, there are two types of costs that a business faces: Variable costs which vary proportionally
More informationShanghai Jiao Tong University. FI410 Corporate Finance
Shanghai Jiao Tong University FI410 Corporate Finance Instructor: Xiaorong Zhang Email: xrzhang@fudan.edu.cn Home Institution: Office Hours: Fudan University Office: Term: 2 July - 2 August, 2018 Credits:
More informationDegree of Operating Leverage (DOL) EBIT Percentage change in EBIT EBIT DOL. Percentage change in sales Q
Chapter 16 Web Extension: Degree of Leverage I n our discussion of operating leverage in Chapter 16, we made no mention of financial leverage, and when we discussed financial leverage, operating leverage
More informationFINALTERM EXAMINATION Spring 2009 MGT201- Financial Management (Session - 2) Question No: 1 ( Marks: 1 ) - Please choose one What is the long-run objective of financial management? Maximize earnings per
More informationFEEDBACK TUTORIAL LETTER ASSIGNMENT 1 AND 2 MANAGERIAL FINANCE 4B MAF412S
FEEDBACK TUTORIAL LETTER 2 nd SEMESTER 2017 ASSIGNMENT 1 AND 2 MANAGERIAL FINANCE 4B MAF412S 1 ASSIGNMENT 1 QUESTION 1 (i) Investment A at end of Year 3: Year 4 5 6 7 8 Cash flows 1 000 1 000 1 000 1 000
More informationCorporate Finance CFA 一级重要知识点讲解 讲师 : 胡瑾 1-10
Corporate Finance CFA 一级重要知识点讲解 讲师 : 胡瑾 1-10 Leverage 2-10 Leverage and risk Leverage is the use of fixed costs, operating or financial, in a company s cost structure. It increases the risk and potential
More informationAFM 371 Winter 2008 Chapter 16 - Capital Structure: Basic Concepts
AFM 371 Winter 2008 Chapter 16 - Capital Structure: Basic Concepts 1 / 24 Outline Background Capital Structure in Perfect Capital Markets Examples Leverage and Shareholder Returns Corporate Taxes 2 / 24
More informationFEEDBACK TUTORIAL LETTER ASSIGNMENT 2 SECOND SEMESTER 2018 MANAGERIAL FINANCE 4B [MAF412S]
FEEDBACK TUTORIAL LETTER ASSIGNMENT 2 SECOND SEMESTER 2018 MANAGERIAL FINANCE 4B [MAF412S] 1 MANAGERIAL FINANCE 4B Assignment 2 Feedback Dear Student, FEEDBACK TO ASSIGNMENT AND GUIDELINE TO THE EXAMINATION
More informationMGT Financial Management Mega Quiz file solved by Muhammad Afaaq
MGT 201 - Financial Management Mega Quiz file solved by Muhammad Afaaq Afaaq_tariq@yahoo.com Afaaqtariq233@gmail.com Asslam O Alikum MGT 201 Mega Quiz file solved by Muhammad Afaaq Remember Me in Your
More informationOPTIMAL CAPITAL STRUCTURE & CAPITAL BUDGETING WITH TAXES
OPTIMAL CAPITAL STRUCTURE & CAPITAL BUDGETING WITH TAXES Topics: Consider Modigliani & Miller s insights into optimal capital structure Without corporate taxes è Financing policy is irrelevant With corporate
More informationCome & Join Us at VUSTUDENTS.net
Come & Join Us at VUSTUDENTS.net For Assignment Solution, GDB, Online Quizzes, Helping Study material, Past Solved Papers, Solved MCQs, Current Papers, E-Books & more. Go to http://www.vustudents.net and
More informationDividend Decisions. LOS 1 : Introduction 1.1
1.1 Dividend Decisions LOS 1 : Introduction Note: Total Earnings mean Earnings available to equity share holders Income Statement Sales Less: Variable cost Contribution Less: Fixed cost excluding Dep.
More informationChapter 16 Debt Policy
Chapter 16 Debt Policy Konan Chan Financial Management, Fall 2018 Topic Covered Capital structure decision Leverage effect Capital structure theory MM (no taxes) MM (with taxes) Trade-off Pecking order
More informationTHE UNIVERSITY OF NEW SOUTH WALES JUNE / JULY 2006 FINS1613. Business Finance Final Exam
Student Name: Student ID Number: THE UNIVERSITY OF NEW SOUTH WALES JUNE / JULY 2006 FINS1613 Business Finance Final Exam (1) TIME ALLOWED - 2 hours (2) TOTAL NUMBER OF QUESTIONS - 50 (3) ANSWER ALL QUESTIONS
More informationFinancial Leverage: the extent to which a company is committed to fixed charges related to interest payments. Measured by:
Wk 11 FINS1613 Notes 13.1 Discuss the effect of Financial Leverage Financial Leverage: the extent to which a company is committed to fixed charges related to interest payments. Measured by: The debt to
More informationCapital Structure Questions
Capital Structure Questions What do you think? Will the following firm characteristics result in the use of more or less debt? Large firms More tangible assets More lower risk; better access to capital
More informationHomework Solutions - Lecture 2
Homework Solutions - Lecture 2 1. The value of the S&P 500 index is 1312.41 and the treasury rate is 1.83%. In a typical year, stock repurchases increase the average payout ratio on S&P 500 stocks to over
More informationQuestion Paper Financial Management-I (MB2E1): October 2008
Question Paper Financial Management-I (MB2E1): October 2008 Answer all 72 questions. Marks are indicated against each question. Total Marks : 100 1. Which of the following implies the significant advantage
More informationAllison Behuniak, Taylor Jordan, Bettina Lopes, and Thomas Testa. William Wrigley Jr. Company: Capital Structure, Valuation, and Cost of Capital
Allison Behuniak, Taylor Jordan, Bettina Lopes, and Thomas Testa William Wrigley Jr. Company: Capital Structure, Valuation, and Cost of Capital The Situation ² Aurora Borealis was an active-investor hedge
More informationMaximizing the value of the firm is the goal of managing capital structure.
Key Concepts and Skills Understand the effect of financial leverage on cash flows and the cost of equity Understand the impact of taxes and bankruptcy on capital structure choice Understand the basic components
More informationBusiness 5039, Fall 2004
Business 5039, Fall 4 Assignment 3 Suggested Answers 1. Financial Planning Using the financial statements for Rosengarten, Inc., in Table 1, answer the following questions. a) 10 points) Construct Rosengarten
More informationCA - FINAL SECURITY VALUATION. FCA, CFA L3 Candidate
CA - FINAL SECURITY VALUATION FCA, CFA L3 Candidate 2.1 Security Valuation Study Session 2 LOS 1 : Introduction Note: Total Earnings mean Earnings available to equity share holders Income Statement
More informationFinancing decisions (2) Class 16 Financial Management,
Financing decisions (2) Class 16 Financial Management, 15.414 Today Capital structure M&M theorem Leverage, risk, and WACC Reading Brealey and Myers, Chapter 17 Key goal Financing decisions Ensure that
More informationCapital Structure Decisions
GSU, Department of Finance, AFM - Capital Structure / page 1 - Corporate Finance Capital Structure Decisions - Relevant textbook pages - none - Relevant eoc-problems - none - Other relevant material -
More informationChapter 13. (Cont d)
Chapter 13 Equity Valuation (Cont d) Expected Holding Period Return The return on a stock investment comprises cash dividends and capital gains or losses Assuming a one-year holding period Expected HPR=
More informationMULTIPLE-CHOICE QUESTIONS Circle the correct answer on this test paper and record it on the computer answer sheet.
M I M E 3 1 0 E N G I N E E R I N G E C O N O M Y Class Test #2 Thursday, 23 March, 2006 90 minutes PRINT your family name / initial and record your student ID number in the spaces provided below. FAMILY
More informationChapter 18. Equity Valuation Models
Chapter 18 Equity Valuation Models Models of Equity Valuation Balance Sheet Models Book Value Dividend Discount Models Price/Earning Ratios 2 Intrinsic Value and Market Price Intrinsic Value Self assigned
More informationChapter 15. Chapter 15 Overview
Chapter 15 Debt Policy: The Capital Structure Decision Chapter 15 Overview Target and Optimal Capital Structure Risk and Different Types of Financing Business Risk Financial Risk Determining the Optimal
More informationLeverage and Capital Structure
and the balance sheet Leverage and Capital Structure Week 8 2 3 Capital budgeting Capital restructuring Effect of leverage on EPS and CFFA per share Changing the amount of leverage a firm has without changing
More informationAdvanced Corporate Finance. 3. Capital structure
Advanced Corporate Finance 3. Capital structure Objectives of the session So far, NPV concept and possibility to move from accounting data to cash flows => But necessity to go further regarding the discount
More informationValuation: Fundamental Analysis
Valuation: Fundamental Analysis Equity Valuation Models Fundamental analysis models a company s value by assessing its current and future profitability. The purpose of fundamental analysis is to identify
More informationMULTIPLE-CHOICE QUESTIONS Circle the correct answer on this test paper and record it on the computer answer sheet.
M I M E 310 E N G I N E E R I N G E C O N O M Y Class Test #2 Thursday, 15 November, 2007 90 minutes PRINT your family name / initial and record your student ID number in the spaces provided below. FAMILY
More informationBOND VALUATION. YTM Of An n-year Zero-Coupon Bond
BOND VALUATION BOND VALUATIONS BOND: A security sold by governments and corporations to raise money from investors today in exchange for promised future payments 1. ZERO COUPON BONDS ZERO COUPON BONDS:
More informationChapter 17 Financial Planning and Forecasting
Chapter 17 Financial Planning and Forecasting Companies base their operating plans on forecasted financial statements. The company must first forecast sales for the next few years. Then determine the assets
More informationEBIT EBIT Q Q. Percentage change in EBIT Percentage change in sales ¼
WEB APPEDIX 14A Degree of Leverage In our discussion of operating leverage in Chapter 14, we made no mention of financial leverage; and when we discussed financial leverage, operating leverage was assumed
More informationEssential Learning for CTP Candidates TEXPO Conference 2017 Session #02
TEXPO Conference 2017: Essential Learning for CTP Candidates Session #2 (Monday. 10:30 11:45 am) ETM5-Chapter 8: Financial Accounting and Reporting ETM5-Chapter 9: Financial Planning and Analysis Essentials
More informationWeek 6 Equity Valuation 1
Week 6 Equity Valuation 1 Overview of Valuation The basic assumption of all these valuation models is that the future value of all returns can be discounted back to today s present value. Where t = time
More information5. Equity Valuation and the Cost of Capital
5. Equity Valuation and the Cost of Capital Introduction Part Two provided a detailed explanation of the investment decision with only oblique reference to the finance decision, which determines a company
More informationModule 5: Special Financing and Investment Decisions
Module 5: Special Financing and Investment Decisions Reading 5.1: Introduction to Project Financing Some projects are so large that it may be best to finance them as they are standalone operations. Projects
More informationValuation: Fundamental Analysis. Equity Valuation Models. Models of Equity Valuation. Valuation by Comparables
Valuation: Fundamental Analysis 22-2 Equity Valuation Models Fundamental analysis models a company s value by assessing its current and future profitability. The purpose of fundamental analysis is to identify
More informationASSIGNMENT MEMORANDUM : FINANCIAL MANAGEMENT 2 (FM202)
Page 1 of 6 ASSIGNMENT MEMORANDUM SUBJECT : FINANCIAL MANAGEMENT 2 () ASSIGNMENT : 2 nd SEMESTER 2012 QUESTION 1 [25] 1.1. e 1.2. a 1.3. b 1.4. b 1.5. a 1.6. b 1.7. d 1.8. a 1.9. a 1.10. b 1.11. c 1.12.
More informationMidterm Review Package Tutor: Chanwoo Yim
COMMERCE 298 Intro to Finance Midterm Review Package Tutor: Chanwoo Yim BCom 2016, Finance 1. Time Value 2. DCF (Discounted Cash Flow) 2.1 Constant Annuity 2.2 Constant Perpetuity 2.3 Growing Annuity 2.4
More informationFinancial Leverage and Capital Structure Policy
Key Concepts and Skills Chapter 17 Understand the effect of financial leverage on cash flows and the cost of equity Understand the Modigliani and Miller Theory of Capital Structure with/without Taxes Understand
More informationIMPORTANT INFORMATION: This study guide contains important information about your module.
217 University of South Africa All rights reserved Printed and published by the University of South Africa Muckleneuk, Pretoria INV371/1/218 758224 IMPORTANT INFORMATION: This study guide contains important
More informationQuestion # 4 of 15 ( Start time: 07:07:31 PM )
MGT 201 - Financial Management (Quiz # 5) 400+ Quizzes solved by Muhammad Afaaq Afaaq_tariq@yahoo.com Date Monday 31st January and Tuesday 1st February 2011 Question # 1 of 15 ( Start time: 07:04:34 PM
More informationCapital Structure. Balance-sheet Model of the Firm
Capital Structure Topics Debt vs. Equity Contingent Claims MM Proposition Capital structure without taxes Capital structure with taxes Financial Distress Bankruptcy costs Indirect financial distress costs
More informationChapter 15. Topics in Chapter. Capital Structure Decisions
Chapter 15 Capital Structure Decisions 1 Topics in Chapter Overview and preview of capital structure effects Business versus financial risk The impact of debt on returns Capital structure theory, evidence,
More informationLeverage. Capital Budgeting and Corporate Objectives
Leverage Capital Budgeting and Corporate Objectives Professor Ron Kaniel Simon School of Business University of Rochester 1 Overview Capital Structure does not matter!» Modigliani & Miller propositions
More informationValuation! Cynic: A person who knows the price of everything but the value of nothing.. Oscar Wilde. Aswath Damodaran! 1!
Valuation! Cynic: A person who knows the price of everything but the value of nothing.. Oscar Wilde Aswath Damodaran! 1! First Principles! Aswath Damodaran! 2! Three approaches to valuation! Intrinsic
More information12. Cost of Capital. Outline
12. Cost of Capital 0 Outline The Cost of Capital: What is it? The Cost of Equity The Costs of Debt and Preferred Stock The Weighted Average Cost of Capital Economic Value Added 1 1 Required Return The
More informationCost of Capital. João Carvalho das Neves Professor of Corporate Finance & Real Estate Finance ISEG, Universidade de Lisboa
Cost of Capital João Carvalho das Neves Professor of Corporate Finance & Real Estate Finance ISEG, Universidade de Lisboa jcneves@iseg.ulisboa.pt Types of cost of capital that you need to address Cost
More informationPAPER No.: 8 Financial Management MODULE No. : 25 Capital Structure Theories IV: MM Hypothesis with Taxes, Merton Miller Argument
Subject Financial Management Paper No. and Title Module No. and Title Module Tag Paper No.8: Financial Management Module No. 25: Capital Structure Theories IV: MM Hypothesis with Taxes and Merton Miller
More informationFinancial Planning Process
Financial Planning Process 1. Forecast financial statements under alternative operating plans. 2. Determine amount of capital needed to support the plan. 3. Forecast the funds that will be generated internally
More informationFinance Recruiting Interview Preparation
Finance Recruiting Interview Preparation Discounted Cash Flows Session #3 This presentation is for informational purposes only, and is not an offer to buy or sell or a solicitation to buy or sell any securities,
More informationFINALTERM EXAMINATION Fall 2009 MGT201- Financial Management (Session - 3)
FINALTERM EXAMINATION Fall 2009 MGT201- Financial Management (Session - 3) Time: 120 min Marks: 87 Question No: 1 ( Marks: 1 ) - Please choose one ABC s and XYZ s debt-to-total assets ratio is 0.4. What
More informationFN428 : Investment Banking. Lecture 23 : Revision class
FN428 : Investment Banking Lecture 23 : Revision class Recap : Theory of Financial Intermediary An overview of Investment Banking Investment Bank vs. Commercial Bank Which are the various divisions of
More informationMore Tutorial at Corporate Finance
[Type text] More Tutorial at Corporate Finance Question 1. Hardwood Factories, Inc. Hardwood Factories (HF) expects earnings this year of $6/share, and it plans to pay a $4 dividend to shareholders this
More informationHomework and Suggested Example Problems Investment Valuation Damodaran. Lecture 2 Estimating the Cost of Capital
Homework and Suggested Example Problems Investment Valuation Damodaran Lecture 2 Estimating the Cost of Capital Lecture 2 begins with a discussion of alternative discounted cash flow models, including
More informationEMBA in Management & Finance. Corporate Finance. Eric Jondeau
EMA in Management & Finance Corporate Finance EMA in Management & Finance Lecture 3: Capital Structure Modigliani and Miller Outline 1 The Capital-Structure Question 2 Financial Leverage and Firm Value
More informationEssential Learning for CTP Candidates Carolinas Cash Adventure 2018 Session #CTP-04
Carolinas Cash Adventure - 2018: CTP Track Financial Statements, Analysis & Decisions Session #4 (Mon. 9:15 10:15 am) ETM5-Chapter 8: Financial Accounting and Reporting ETM5-Chapter 9: Financial Planning
More informationHomework Solution Ch15
FIN 302 Homework Solution Ch15 Chapter 15: Debt Policy 1. a. True. b. False. As financial leverage increases, the expected rate of return on equity rises by just enough to compensate for its higher risk.
More informationCapital Structure. Katharina Lewellen Finance Theory II February 18 and 19, 2003
Capital Structure Katharina Lewellen Finance Theory II February 18 and 19, 2003 The Key Questions of Corporate Finance Valuation: How do we distinguish between good investment projects and bad ones? Financing:
More informationChapter 15. Required Returns and the Cost of Capital. Required Returns and the Cost of Capital. Key Sources of Value Creation
15-1 Chapter 15 Required Returns and the Cost of Capital Fundamentals of Financial Management, 12/e Created by: Gregory A. Kuhlemeyer, Ph.D. 15-2 After studying Chapter 15, you should be able to: Explain
More informationOSN ACADEMY. LUCKNOW
OSN ACADEMY www.osnacademy.com LUCKNOW 0522-4006074 1 SUBJECT COMMERCE SUBJECT CODE 08 UNIT - VII 9935977317 0522-4006074 2 CONTENT Ch.No. Chapter Name 1. Financial functions 2. Cost of capital 3. Weighted
More informationChapter 7. Leverage and Capital Structure
Chapter 7 Leverage and Capital Structure INTRODUCTION Leverage, as a business term, refers to debt or to the borrowing of funds to finance the purchase of a company's assets. Business owners can use either
More informationMOCK EXAMINATION DECEMBER 2013
Copyright Reserved MOCK EXAMINATION DECEMBER 2013 Strategic Financial Management Answer No. 01 (a) Option 01 - Rs. Mn Benefit 6 40 15% Project Cost 50 Net present Value -10 Option 02 Cashflow NPV @15%
More informationAdvanced Corporate Finance. 3. Capital structure
Advanced Corporate Finance 3. Capital structure Practical Information Change of groups! A => : Group 3 Friday 10-12 am F => N : Group 2 Monday 4-6 pm O => Z : Group 1 Friday 4-6 pm 2 Objectives of the
More informationD.K.M COLLEGE FOR WOMEN, (AUTONOMOUS),VELLORE-1. DEPARTMENT OF COMMERCE I M.COM ADVANCED FINANCIAL MANAGEMENT.
D.K.M COLLEGE FOR WOMEN, (AUTONOMOUS),VELLORE-1. DEPARTMENT OF COMMERCE I M.COM ADVANCED FINANCIAL MANAGEMENT. SECTION-A 6 Marks 1. State the objectives of Financial Management? 2. Explain the functions
More informationYou have been provided with the following information about a project, which TOB Ltd. is planning to undertake soon.
NUMBER ONE QUESTIONS You have been provided with the following information about a project, which TOB Ltd. is planning to undertake soon. Cost of equipment Economic life Installation costs Depreciation
More informationFIN622 Formulas
The quick ratio is defined as follows: Quick Ratio = (Current Assets Inventory)/ Current Liabilities Receivables Turnover = Annual Credit Sales / Accounts Receivable The collection period also can be written
More informationVU RTKz. JOIN VU RTKz FINANCIAL MANAGEMENT MGT-201 FINAL TERM PAPERS Virtual University 2010
JOIN VU RTKz http://groups.google.com/group/rtkz VURTKz@gmail.com FINANCIAL MANAGEMENT MGT-201 FINAL TERM PAPERS Virtual University 2010 Question No: 1 ( Marks: 1 ) - Please choose one An 8-year annuity
More informationSample Questions and Solutions
Sample Questions and Solutions Public Comparables Question Facts for Company XYZ: Closing stock price is $18.00 1,000 shares outstanding, and 100 outstanding options outstanding with an average exercise
More informationQUESTION ONE Briefly explain three practical uses of the capital asset pricing model. ( 6 marks) Beta equity coefficient
QUESTIONS QUESTION ONE Briefly explain three practical uses of the capital asset pricing model. ( 6 marks) (b) Mr. P K is currently holding a portfolio consisting of shares of four companies quoted on
More informationFinancial Planning and Control. Semester: 1/2559
Financial Planning and Control Semester: 1/2559 Krisada Khruachalee Master of Science in Applied Statistics, Master of Science in Finance, Bachelor of Business Administration (Cum Laude), Finance and Banking
More informationMarket vs Intrinsic Value
Market vs Intrinsic Value Market Value Determined by the consensus of market participants Observed in the market Intrinsic value Present value of expected future cash flows Not observed Estimated using
More informationPAPER 7 : FINANCIAL MANAGEMENT
Level of Knowledge: Working knowledge PAPER 7 : FINANCIAL MANAGEMENT (60 Marks) Learning Outcome: To gain knowledge of various aspects of Financial Management and the ability to apply such knowledge in
More informationAdvanced Corporate Finance Exercises Session 1 «Pre-requisites: a reminder»
Advanced Corporate Finance Exercises Session 1 «Pre-requisites: a reminder» Professor Kim Oosterlinck E-mail: koosterl@ulb.ac.be Teaching assistants: Nicolas Degive (ndegive@ulb.ac.be) Laurent Frisque
More informationCHARTERED INSTITUTE OF STOCKBROKERS. September 2018 Specialised Certification Examination. Paper 2.5 Equities Dealing
CHARTERED INSTITUTE OF STOCKBROKERS September 2018 Specialised Certification Examination Paper 2.5 Equities Dealing 2 Question 2 - Equity Valuation and Analysis 2a) An analyst gathered the following data:
More informationChapter 12. Evaluating Project Economics and Capital Rationing. 1. Explain and be able to demonstrate how variable costs and fixed costs affect the
Chapter 12 Evaluating Project Economics and Capital Rationing Learning Objectives 1. Explain and be able to demonstrate how variable costs and fixed costs affect the volatility of pretax operating cash
More informationValuing Levered Projects
Valuing Levered Projects Interactions between financing and investing Nico van der Wijst 1 D. van der Wijst Finance for science and technology students 1 First analyses 2 3 4 2 D. van der Wijst Finance
More informationHomework Solutions - Lecture 2 Part 2
Homework Solutions - Lecture 2 Part 2 1. In 1995, Time Warner Inc. had a Beta of 1.61. Part of the reason for this high Beta was the debt left over from the leveraged buyout of Time by Warner in 1989,
More informationSUGGESTED SOLUTION IPCC NOVEMBER 2018 EXAM. Test Code CIN 5001
SUGGESTED SOLUTION IPCC NOVEMBER 2018 EXAM FM Test Code CIN 5001 BRANCH- MULTIPLE (Date : 08.07.2018) Head Office : Shraddha, 3 rd Floor, Near Chinai College, Andheri (E), Mumbai 69. Tel : (022) 26836666
More informationPage 515 Summary and Conclusions
Page 515 Summary and Conclusions 1. We began our discussion of the capital structure decision by arguing that the particular capital structure that maximizes the value of the firm is also the one that
More informationPAPER 20: FINANCIAL ANALYSIS & BUSINESS VALUATION
PAPER 20: FINANCIAL ANALYSIS & BUSINESS VALUATION Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 1 LEVEL C Answer to PTP_Final_Syllabus
More informationQuiz Bomb. Page 1 of 12
Page 1 of 12 Quiz Bomb Indicate whether the following statements are True or False. Support your answer with reason: 1. Public finance is the study of money management of individual. False. Public finance
More information