Q2 Unilever PLC and Burberry Group PLC both have their ordinary shares listed on the London Stock Exchange (LSE). a) At closing on one particular date during the assessment period, write down each company’s current share price (as listed on the LSE) and state their beta. Further, state the date you have used and the source of your information. [2 marks] b) Explain the conclusions you would draw from the two companies’ betas. [2 marks] [Total 4 marks]
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Joe plans to deposit $200 at the end of each month into a bank account for a period of 2 years, after which he plans to deposit $300 at the end of each month into the same account for another 3 years. If the bank pays interest at the rate of 3.5%/year compounded monthly, how much will Joe have in his account by the end of 5 years? (Assume that no withdrawals are made during the 5-year period.)
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Who are the main actors in the US capital markets and why do they choose to operate there?
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What are the four categories of the tasks performed by the financial management department? In what ways does the financial management department contribute to the strategic planning process? Please provide an example to support your answer.
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Prokter and Gramble (PKGR) has historically maintained a debt-equity ratio of approximately 0.18. Its current stock price is $51 per share, with 2.6 billion shares outstanding. The firm enjoys very stable demand for its products, and consequently it has a low equity beta of 0.45 and can borrow at 4.6%, just 20 basis points over the risk-free rate of 4.4%. The expected return of the market is 9.5%, and PKGR's tax rate is 30%.
a. This year, PKGR is expected to have free cash flows of $6.1 billion. What constant expected growth rate of free cash flow is consistent with its current stock price?
b. PKGR believes it can increase debt without any serious risk of distress or other costs. With a higher debt-equity ratio of 0.45, it believes its borrowing costs will rise only slightly to 4.9%. If PKGR announces that it will raise its debt-equity ratio to 0.45 through a leveraged recap, determine the increase or decrease in the stock price that would result from the anticipated tax savings.
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if you were a hospital administrator which side of the aisle would you prefer to work on - cost management or cost allocation side? Please explain and cite your response.
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Liquidation
At the time it defaulted on its interest payments and filed for bankruptcy, the McDaniel Mining Company had the balance sheet shown below (in thousands of dollars). The court, after trying unsuccessfully to reorganize the firm, decided that the only recourse was liquidation under Chapter 7. Sale of the fixed assets, which were pledged as collateral to the mortgage bondholders, brought in $410,000, while the current assets were sold for another $250,000. Thus, the total proceeds from the liquidation sale were $660,000. The trustee's costs amounted to $30,000; no single worker was due more than the maximum allowable wages per worker; and there were no unfunded pension plan liabilities.
| Balance Sheet (Thousands of Dollars) | ||||||
| Current assets | $ | 400 | Account payable | $ | 50 | |
| Net fixed assets | 600 | Accrued taxes | 40 | |||
| Accrued wages | 30 | |||||
| Notes payable | 180 | |||||
| Total current liabilities | $ | 300 | ||||
| First-mortgage bondsa | 300 | |||||
| Second-mortgage bondsa | 200 | |||||
| Debentures | 200 | |||||
| Subordinated debenturesb | 100 | |||||
| Common stock | 50 | |||||
| Retained earnings | (150) | |||||
| Total assets | $ | 1,000 | Total liabilities & equity | $ | 1,000 | |
| Notes: aAll fixed assets are pledged as collateral to the mortgage bonds. bSubordinated to notes payable only. |
||||||
$
The first mortgage bondholders will receive $ from collateralized assets that -Select-isis notItem 3 equal to their full claim. Therefore, the first mortgage holders have $ in unsatisfied claims.
The second mortgage bondholders will receive $ from collateralized assets that -Select-isis notItem 6 equal to their full claim. Therefore, the second mortgage holders have $ in unsatisfied claims.
| Remainging primary claimants | Amount |
| Trustee's expenses | $ |
| Workers' wages due | $ |
| Governments' taxes due | $ |
| Total | $ |
Account |
Amount Received before subordination adjustment |
||
| Accounts payable | $ | ||
| Notes payable | $ | ||
| Second mortgage bonds | $ | ||
| Debentures | $ | ||
| Subordinated debentures | $ | ||
| Total | $ | ||
How much will the remaining general creditors receive after subordination? Do not round intermediate calculations. Write out your answer completely. For example, 5 thousand dollar should be entered as 5,000. Round your answers to the nearest dollar. If no entry is required, enter "0".
Account |
Amount Received after subordination adjustment |
||
| Accounts payable | $ | ||
| Notes payable | $ | ||
| Second mortgage bonds | $ | ||
| Debentures | $ | ||
| Subordinated debentures | $ | ||
| Total | $ | ||
How much in total will the second mortgage holders receive (include the amount received from collateral)? Do not round intermediate calculations. Write out your answer completely. For example, 5 thousand dollar should be entered as 5,000. Round your answer to the nearest dollar.
$
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|
Jet Black is an international conglomerate with a petroleum division and is currently competing in an auction to win the right to drill for crude oil on a large piece of land in one year. The current market price of crude oil is $109 per barrel and the land is believed to contain 616,000 barrels of oil. If found, the oil would cost $117 million to extract. Treasury bills that mature in one year yield a continuously compounded interest rate of 6 percent and the standard deviation of the returns on the price of crude oil is 65 percent. |
|
Use the Black-Scholes model to calculate the maximum bid that the company should be willing to make at the auction. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) Maximum bid = ? |
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4. Cost of trade credit
Firms usually offer their customers some form of trade credit. This allowance comes with certain terms of credit, which will affect the actual cost of asset being sold for the buyer and the seller.
Consider this case:
Tasty Tuna Corporation buys most of its raw materials from a single supplier. This supplier sells to Tasty Tuna on terms of 1/15, net 60.
a. The cost per period of the trade credit extended to Tasty Tuna is __________? A. 0.81% B. 0.89% C.1.15% D. 1.01%
(Note: Round all intermediate calculations to four decimal places, and your final answer to two decimal places.).
b. Tasty Tuna’s trade credit has a nominal annual cost of _____________ , assuming a 365-day year. A. 5.73% B.7.37% C.9.66% D 8.19%
(Note: Round all intermediate calculations to four decimal places, and your final answer to two decimal places.)
c. If Tasty Tuna Corporation’s supplier shortens its discount period to five days, this will __________ the cost of the trade credit. Decrease or Increase
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You are a US firm and expect to receive 10,000,000 Malaysian Ringitt (MR) from a customer for sure after six months. How would you achieve a complete hedge if you had the following: Spot rate $0.22/MR, six month US$ risk-free rate = 2.5 percent and six month MR risk-free rate is 3.5 percent. Describe the transactions in detail. 2 Suppose the payment in MR from your customer is not certain, and, in addition to the spot and risk-free rates mentioned above, you also have an options market in which MR calls trade. How would you construct the appropriate hedge in this case? Describe the transactions in detail.
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Do you see value in the premise of resource dependency theory as an individual? How does resource dependency theory benefit an organization?
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An asset used in a four-year project falls in the five-year MACRS class (MACRS Table) for tax purposes. The asset has an acquisition cost of $7,200,000 and will be sold for $1,620,000 at the end of the project.
A) What is the book value of the equipment at the end of Year 4?
B) If the tax rate is 24 percent, what is the aftertax salvage value of the asset?
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Gary Levin is the chief executive officer of Mountainbrook Trading Company. The board of directors has just granted Mr. Levin 14,000 at-the-money European call options on the company’s stock, which is currently trading at $115 per share. The stock pays no dividends. The options will expire in five years and the standard deviation of the returns on the stock is 56 percent. Treasury bills that mature in five years currently yield a continuously compounded interest rate of 7 percent.
a. Use the Black-Scholes model to calculate the value of the stock options. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Value of option grant=?
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Explain your opinion on Corporate Governance?
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You are given the following information for Lightning Power Co. Assume the company's tax rate is 25 percent.
Debt: 15,000 6.4 percent coupon bonds outstanding$1,000 par value, 28 years to maturity, selling for 106 percent of par, the bonds make semiannual payments.
Common Stock: 480,000 shares outstanding, selling for $66 per share; beta is 1.17.
Preferred Stock: 21,000 shares of 4.2 percent preferred stock outstanding, currently selling for $87 per share. The par value is $100 per share.
5 percent market risk premium and 5.3 percent risk-free rate.
what is the companys WACC
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