UBTECH Robotics is expected to generate the following free cash flows over the next five years. After which, the free cash flows are expected to grow at the industry average of 3% per year. Using the discounted free cash flow model and the weighted average cost of capital of 11%
UBTECH Robotics FCF Forecast ($ Millions) Year 1999, 2000, 2001, 2002, 2003, 2004
FCF (Amount in Millions)$55, $45, $89, $102, $84, $87
a. Estimate the enterprise value (V0) of UBTECH Robotics.
b. If UBTECH Robotics has excess cash of $5.6 Billion, a debt of $800 Million and 50 Million shares outstanding, estimate its share price (P0).
In: Finance
In early January 2010, you purchased $19 comma 000 worth of some high-grade corporate bonds. The bonds carried a coupon of 7 4/8% and mature in 2024.
You paid 95.463 when you bought the bonds. Over the five years from 2010 through 2014, the bonds were priced in the market as follows:
Year | Beginning of the Year |
End of the Year |
Average Holding Period Return on High-Grade Corporate Bonds |
2010 | 95.463 | 104.824 | 7.30% |
2011 | 104.824 | 106.783 | 11.72% |
2012 | 106.783 | 108.567 | -6.89% |
2013 | 108.567 | 116.281 | 7.90% |
2014 | 116.281 | 128.181 | 9.11% |
Coupon payments were made on schedule throughout the 5-year period.
a. Find the annual holding period returns for 2010 through 2014.
b. Use the average return information in the given table to evaluate the investment performance of this bond. How do you think it stacks up against the market? Explain.
a. The holding period return for 2010 is nothing%. (Round to two decimal places.)
The holding period return for 2011 is nothing%. (Round to two decimal places.)
The holding period return for 2012 is nothing %. (Round to two decimal places.)
The holding period return for 2013 is nothing%. (Round to two decimal places.)
The holding period return for 2014 is nothing%. (Round to two decimal places.)
b. Use the average return information in the given table to evaluate the investment performance of this bond. How do you think it stacks up against the market? Explain.
The high-grade corporate bond investment has outperformed the market. The average rate of return for the investment is 13.21% versus the average market rate of 5.83%.
The market has outperformed the corporate bond investment. The average rate of return for the investment is 5.83% versus the average market rate of 13.21%.
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One of the challenges of strategy analysis for an organisation in a smaller economy is finding sufficient competitors in its same industry. Apart from being in the same industry, offering the same products or services, what are other common factors between organisations that permit you to undertake an effective strategy analysis? What factors are not sufficient to permit an effective comparison? (For example, meeting the same customer needs with a different product or service may be sufficient, whereas being located in the same region may not.)
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How are international banks different from domestic banks?
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Without leverage, Impi Corporation will have net income next year of $ 8.0 million. If Impi's corporate tax rate is 21 % and it pays 9 % interest on its debt, how much additional debt can Impi issue this year and still receive the benefit of the interest tax shield next year? (Note: Assume Impi's revenues exceed $ 24 million, and that interest tax deductions are limited to 30 % of EBIT under the TCJA.)
The debt is $____million.
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Elliot Karlin is a 35-year-old bank executive who has just inherited a large sum of money. Having spent several years in the bank's investments department, he's well aware of the concept of duration and decides to apply it to his bond portfolio. In particular, Elliot intends to use $ 1million of his inheritance to purchase 4 U.S. Treasury bonds:
1. An 8.59 %, 13-year bond that's priced at $ 1,093.02to yield 7.46 %.
2. A 7.777 %, 15-year bond that's priced at $ 1021.98 to yield 7.53 %.
3. A 20-year stripped Treasury (zero coupon) that's priced at $ 198.52 to yield 8.25 %.
4. A 24-year, 7.47 % bond that's priced at $ 955.08 to yield 7.89 %.
Note that these bonds are semiannual compounding bonds.
a. Find the duration and the modified duration of each bond.
b. Find the duration of the whole bond portfolio if Elliot puts $ 250,000 into each of the 4 U.S. Treasury bonds.
c. Find the duration of the portfolio if Elliot puts $ 330,000 each into bonds 1 and 3 and $ 170,000 each into bonds 2 and 4.
d. Which portfolio b or c should Elliot select if he thinks rates are about to head up and he wants to avoid as much price volatility as possible? Explain. From which portfolio does he stand to make more in annual interest income? Which portfolio would you recommend, and why?
In: Finance
EPS | DPS | STOCK PRICE | ROE | ROA | |
Blue Ribband Motors Corp. | $ 1.24 | $ 0.39 | $ 20.10 | 11.00% | 14.00% |
Bon Voyage Marine, Inc. | 1.55 | 0.47 | 16.85 | 14.00% | 17.00% |
Nautilus Marine Engines | (0.25) | 0.67 | 31.60 | N/A | 13.00% |
Industry average | 0.85 | 0.51 | 22.85 | 12.50% | 14.67% |
The company is equally owned by Carrington and Genevieve. The original agreement between the siblings gave each 125,000 shares of stock. Larissa has asked Dan to determine a value per share of Ragan stock. To accomplish this Dan has gathered the following info about some public competitors. Nautilus Marine Engines (EPS) was the result of an accounting write-off last year. Without the write-off, EPS for the company would have been $1.93. Last year, Ragan had an EPS of $3.65 and paid a dividend to Carrigton and Genevieve for $195,000 each. The company also had a ROE of 18%. Larissa teslls Dan that a required return for Ragan of 13% is appropriate. |
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a. Calculate the industry's average growth rate. You may need to adjust for nonrecurring events that would impact the industry information |
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Average Industry Growth Rate = | |||||||||||
b. Calculate the Dividends for Ragan for each of the next 6 years | |||||||||||
c. What is the value of the stock today and what is the value per share? | |||||||||||
In: Finance
Rentz Corporation is investigating the optimal level of current assets for the coming year. Management expects sales to increase to approximately $3 million as a result of an asset expansion presently being undertaken. Fixed assets total $3 million, and the firm plans to maintain a 55% debt-to-assets ratio. Rentz's interest rate is currently 8% on both short-term and long-term debt (which the firm uses in its permanent structure). Three alternatives regarding the projected current assets level are under consideration: (1) a restricted policy where current assets would be only 45% of projected sales, (2) a moderate policy where current assets would be 50% of sales, and (3) a relaxed policy where current assets would be 60% of sales. Earnings before interest and taxes should be 12% of total sales, and the federal-plus-state tax rate is 40%.
What is the expected return on equity under each current assets level? Round your answers to two decimal places.
Restricted policy: %
Moderate policy: %
Relaxed policy: %
In this problem, we assume that expected sales are independent of the current assets investment policy. Is this a valid assumption?
a. Yes, the current asset policies followed by the firm mainly influence the level of long-term debt used by the firm.
b. Yes, the current asset policies followed by the firm mainly influence the level of fixed assets.
c. No, this assumption would probably not be valid in a real world situation. A firm's current asset policies may have a significant effect on sales.
d. Yes, this assumption would probably be valid in a real world situation. A firm's current asset policies have no significant effect on sales.
e. Yes, sales are controlled only by the degree of marketing effort the firm uses, irrespective of the current asset policies it employs.
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Which amount will be worth more in the future?
(1) $300 invested monthly for 35 years with an average annual return of 10% compounded monthly.
or
(2) $1,000,000 lottery you win 35 years from now
Note: You must support your response with a calculation!
In: Finance
True or False?
5. In general, if interest rates rise, the prices of existing bonds rise.
6. If a company defaults on its bonds, interest continues to accrue but may not be paid.
7. Current yield provides the best measure of a bond’s investment return.
8. Preferred stock dividends are usually fixed.
9. If a cumulative preferred stock’s dividend is in arrears, the dividend is not being paid.
10. Corporations are obligated to pay cash dividends if they generate earnings.
11. The value of a preferred stock rises when interest rates rise.
12. The shorter the term of a preferred stock, the less volatile should be its price.
13. An increase in the required return will tend to increase the value of a stock.
14. Corporations that pay common stock dividends apply less to retained earnings than if they didn’t pay dividends.
15. The shares of mutual funds are readily bought and sold in efficient, secondary markets.
In: Finance
Consider the following balance sheet (in millions) for an FI:
Assets Liabilities
Duration = 10 years $950 Duration = 2 years $860
Equity 90
a)What is the FI's duration gap?
b)What is the FI's interest rate risk exposure?
c)How can the FI use futures and forward contracts to put on a macrohedge?
d) What is the impact on the FI's equity value if the relative change in interest rates is an increase of 1 percent? That is, DR/(1+R) = 0.01.
e)Suppose that the FI in part (c) macrohedges using Treasury bond futures that are currently priced at 96. What is the impact on the FI's futures position if the relative change in all interest rates is an increase of 1 percent? That is, DR/(1+R) = 0.01. Assume that the deliverable Treasury bond has a duration of nine years.
f)If the FI wants a perfect macrohedge, how many government bond futures contracts does it need?
g)How does consideration of basis risk change your answers?
In: Finance
Rogot Instruments makes fine violins and cellos. It has $1.7 million in debt outstanding, equity valued at $2.1 million and pays corporate income tax at rate 36 % . Its cost of equity is 14 % and its cost of debt is 6 % .
a. What is Rogot's pretax WACC?
b. What is Rogot's (effective after-tax) WACC?
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Your firm currently has $ 116 million in debt outstanding with a 9 % interest rate. The terms of the loan require the firm to repay $ 29 million of the balance each year. Suppose that the marginal corporate tax rate is 35 % , and that the interest tax shields have the same risk as the loan. What is the present value of the interest tax shields from this debt?
In: Finance
length 1200 words:
Question; What is your opinion of e-business and e-commerce and their roles in today’s world of business? Analyse a case study to support your ideas.
In: Finance
1. To gain the benefit of _______________, a bank makes various types of loans, to various types of borrowers.
A. guaranteed
income
B. diversification
C. more firm-specific risk
exposure
D. reduced operational risk
E. reduced off-balance-sheet risk
2. Argentina unilaterally told its creditors in 2005 that it would henceforth repay only $0.30 for every $1.00 of its debt that was outstanding. Argentina’s creditors had been exposed to ______________ risk, which was then realized.
A.
sovereign
B. operational
C. technology
D. interest rate
E. (b) and (c)
3. Many banks lost considerable amounts on failing real estate mortgage loans about the time of the Financial Crisis of 2007-08. The risk of such occurrences would be categorized as:
A.
off-balance-sheet risk
B. operational risk
C. credit risk
D. technology risk
E. country or sovereign risk
4. All of Hometown Bank’s outstanding loans are fixed interest rates with maturities over two years. Hometown’s deposits all have maturities less than six months, either overnight checking account deposits or six-month CDs. From this fact alone, Hometown is facing:
A. Credit
risk
B. Insolvency risk
C. Liquidity risk
D. Operational risk
E. Interest rate risk
5. If an unanticipated increase in deposits withdrawals forces a Savings Institution to sell balance sheet assets at “fire sale” prices, the SI was exposed to ____________.
A. credit
risk.
B. liquidity risk.
C. interest rate risk.
D. sovereign risk.
E. technology risk.
In: Finance