Study the following Pro-Forma Statement of Comprehensive Income of Dhikim Ltd for the
month ending 28 February 2019.

You will be required to use the information provided to:
2.1 Calculate the following for February 2019.
2.1.1 Cost of Sales (1 mark)
2.1.2 Taxation (1 mark)
2.1.3 Profit after Taxation (1 mark)


2.2 Prepare the Pro-Forma Statement of Comprehensive Income for the month ending March
2019.

Note: use the format provided for February 2019
Information

Pro-Forma Statement of Comprehensive income of Dhikim Ltd for the month ending 28
February 2019

Additional information
- Sales is forecasted to increase by 10% in March 2019
- The Gross Margin for March 2019 remains unchanged from February 2019
- Operating Income and Operating Expenses for March 2019 will vary in proportion to sales
from February 2019 (percentage of sales).
- There was no change to interest receipts and payments for March 2019 from February
2019
- The tax rate remains the same for March 2019

An 8-year $1,000 par Treasury bond pays a 7 percent semi-annual coupon. The bond has a conversion factor of 1.025. The risk-free is 6 percent and the annual yield on the bond is 7 percent. The bond just made a coupon payment. The price of a 15-month futures contract is closest to:

A. $1 049.32

B. $979.00

C. $983.32

Samsung is spending $8 billion to try to gain an edge on other big tech companies that are piling into autos.

What do you think about Samsung's decision to invest in cars?

1. Currently, 1 Euro is equivalent to 0.88 GBP (i.e., British pounds). Assume that the interest rate over one (annual) timestep in Britain is rGB = 3.5%, and in Europe, it is rE = 2.0%. Operate in CRR notation with u = 1.1, and d = 1/u throughout this question, and be careful to specify which currency you are using in all answers. (a) Assume that your domestic currency is GBP. (i) Calculate the risk neutral probability for an exchange rate option. Let each time step represent one year, so you can use the interest rates given without conversion. (ii) Construct a 4-step binomial tree for the exchange rate. (iii) Assume the strike rate of an exchange rate (European) call option is k = 1.00 GBP/EUR, and the face value is F = EUR10,000. Construct a binomial tree and calculate the premium of this call option, in GBP. (iv) Using the same strike rate and face value, calculate the premium of an exchange rate European put (in GBP).

Mary Inc. is considering mutually exclusive Projects A and B, whose cash flows are shown below. If the decision is made by choosing the project with the higher IRR, will there be any value loss due to the IRR-based decision? If there is a loss, how much value will be forgone? The WACC is assumed to be 9.5%.

Use a financial calculator and show all steps from the calculator used. DO NOT USE EXCEL. Thank you and show all steps

A sinking fund earning interest at j₂ = 6% now contains $10 000.

a) What quarterly equal deposits for the next 5 years will cause the sinking fund to grow to $20 000?

b) Within these 5 years from now, how much is in the sinking fund at the end of 4 years?

1. Explain how uncertainty concerning future interest rates would affect the decision to refund a bond issue.

2. Define the following: direct lease, sale-leaseback arrangement, leveraged lease, and financial (capital) lease.

3. What elements must be included in a lease in order for it to be considered a financial (capital) lease?

Finco Inc. manufactures financial calculators. The company is deciding whether to introduce a new calculator. This calculator will sell for $100. The company feels that sales will be 12,500, 13,000, 14,000, 13,200, and 12,500 units per year for the next 5 years. Variable costs will be 25% of sales, and fixed costs are $300,000 per year. The firm hired a marketing team to analyze the viability of the product and the marketing analysis cost $1,500,000. The company plans to use a vacant warehouse to manufacture and store the calculators. Based on a recent appraisal the warehouse and the property is worth $2.5 million on an after-tax basis. If the company does not sell the property today then it will sell the property 5 years from today at the currently appraised value. This project will require an injection of net working capital at the onset of the project in the amount of $100,000. This networking capital will be fully recovered at the end of the project. The firm will need to purchase some equipment in the amount of $1,200,000 to produce the new calculators. The machine has a 7-year life and will be depreciated using the straight-line method. At the end of the project, the anticipated market value of the machine is $150,000. The firm requires a 10% return on its investment and has a tax rate of 21%.

Calculate the after tax salvage value at the end of year 5. (Round to two decimals)

Calculate the operating cash flows at the end of year 1. (Round to two decimals)

Calculate the initial cash outflow (e.g. the time 0 cash flow). (Enter a negative value and round to two decimals)

Calculate the cash flow from assets at the end of year 5. (Round to two decimals)

Calculate the net present value for the project. (Round to 2 decimals)

Jill buys a house for $800k, lives there for exactly 10 years and sells it.

Suppose Jill’s annual cost of ownership is exactly equal to the annual rent she would have paid to live in the same house.

Suppose the price of Jill’s house grows 3.4% annually.

Buying expenses are 5% of purchase price and selling expenses are 8% of sale price.

Compute Jill’s annual IRR from owning net of renting.

(hint: look at the buy vs rent slides, assume no mortgage.)

Refer to the search you performed in the Learning Activities on the U.S. Securities and Exchange Commission's (SEC) website. This search should have produced a variety of financial documents for the publically traded companies you searched. Identify one of said companies from the SEC site and discuss the nature of the information provided in the documents. What statements were provided? Why were these particular documents provided? What was there purpose?

300-400 words, APA Citation/References

What is the relationship between risk and return? What is the significance of this relationship for the investor?

WACC and Company Valuation Mini Case Study Brian Jones is a 30-year-old managing director of Full Charge Corporation. Recently promoted to the role upon the retirement of his father, he is the third generation of his family to run the business. Historically Full Charge Corporation had been a significant player in the market for battery production for diesel and petrol fuelled vehicles. More recently, the business has pivoted toward addressing demand for batteries used in electric vehicles. Despite strong and steady profitability in recent years, Full Charge’s share price had been relatively stagnant at around $25 per share. Brian felt that this was in part due to the financial policies followed by his father, which he viewed as overly conservative. Full Charge Corporation have historically been 100% equity financed with no debt in the capital structure. Full Charge Corporation are active in the production of a technology that will help reduce environmentally harmful emissions and thus they benefit from a major tax break. More specifically, they pay zero corporation tax. Noting that unconventional monetary policies had supressed yields (and thus lowered borrowing costs) in the aftermath of the financial crisis, Brian proposed that Full Charge make a significant change to its capital structure. He proposed that the company buy back $500m of its outstanding shares using cash raised by issuing new debt. He estimated that the cost of this debt would be around 4% based on prevailing market yields on the debt of firms with similar levels of credit quality. Brian was confident that this policy would make shareholders (of which he was one) better off. In aggregate, those who sold would receive $500m in cash, but Brian projected the share price for the remaining shareholders would also rise as a result of his actions. Historically Full Charge had a policy of returning all company profits to shareholders in the form of a dividend, and Brian was clear that this policy should continue. Whilst reducing the share-count would mean that in aggregate less dividends would be distributed, he was confident that the dividend paid per share would increase. His accounting department prepared the following basic set of pro forma financial statements for the coming year (for the all equity-financed firm)… Full Charge Corp Pro- Forma Financial Statement All figures (except per share) in $m Shares Outstanding Measured in Millions Income Statement Revenue 1500 Operating Expenses 1375 Operating Profit 125 Net Income 125 Dividends 125 Shares Outstanding 62.5 Dividends Per Share 2.00 Balance Sheet Current Assets 450 Fixed Assets 550 Total Assets 1000 Total Debt 0 Total Equity 1000 Total Capital 1000 Inflation was currently running at close to zero. Revenue and operating expenses were thus projected to remain at the same amount per year indefinitely. Brian observed that the company’s equity beta was around 0.8 whilst the market risk premium was around 5%. He estimated the current cost of equity of the no-debt firm as 8%. On the basis of an estimated cost of debt of 4%, Brian argued that any increase in debt would lead to a lowering of the company’s capital cost. He thought “If we aggressively seek the best deals for raw materials, why shouldn’t we extend the same philosophy to our capital?” Brian’s colleague and MBA graduate, Amanda, expressed some concerns about the restructuring. Firstly, she asserted that the proposed action might boost EPS, however adding debt to the capital structure would magnify the sensitivity of EPS to changes in operating profit. Furthermore, she expressed doubt as to whether or not the restructuring would have the share price impact Brian predicted. Provide some financial analysis to help support Amanda’s line of reasoning. (For ease of exposition, assume that there are neither distress costs nor signalling value associated with capital structure decisions). Given the growth in the market for electric vehicles, the government is weighing up whether to drop the tax exemption enjoyed by Full Charge Corporation. More specifically, there is debate about the introduction of a 20% corporation tax rate for companies in this market. What would this proposed tax change mean for the post restructuring weighted average cost of capital (WACC) and the share price of Full Charge? (For the scenario where corporate taxes apply, assume that the post-restructuring share count equals 39.4m). Again, assume there are neither distress costs nor signalling implications associated with capital structure decisions. Explain the underlying mechanisms that lead to any changes in the WACC and share price.

1. How does a crossing system differ from an electronic exchange?

2. What is a specialist? What is a market maker? When trading, what advantage do the two have over you?

3. Describe some alternatives to trading on the main stock exchanges

Assume that the company has the following capital structure:

What will be the cost of capital if the company decide to raise the needed capital proportionally and with following costs? Please use the following information to calculate the weighted cost of capital:

1. Bond:

A 30-year bond with a face value of $1000 and coupon interest rate of 13% and floatation cost of $20 (Tax is 35%)

2. Preferred stock:

Face value of $35 that pays dividend $5 and floatation cost of $2

3. Common stock:

Market value of $54 with floatation cost of $3.5. Last dividend was $6. The dividend will expect to grow at 7%.