Question

You are given the following data for year 1: revenue = 200, cash operating costs = 120, depreciation 20 and the tax rate of 25%. Calculate the after tax operating cash flow (OCF) for the project in year 1

Select one:

a.

$37.5

b.

$80

c.

$65

d.

$45

Stock A has a beta of 1.0 and very high specific risk. If the expected return on the market is 15%, then according to the CAPM the expected return on Stock A will be:

a.

at least 15% if the investor holds only Stock A.

b.

the answer cannot be found without knowing the risk-free rate of interest.

c.

exactly 20%.

d.

more than 15% because of Stock A’s very highspecific risk.

Manufacturing company borrows 4 million euros from the bank to fight the consequences of the corona virus. The repayment schedule is based on an annuity. The interest rate is 8% and the loan is paid back with 4 annual payments.

Question:

* What is the loan balance immediately the first loan payment is made?

(Please present your answers by rounding up to thousands and use thousands as unit of measurement. For example the answer 250920 should be written as 251)

Answer:

US Federal Reserve unexpectedly decreases the monetary policy target rates (federal funds rate) As a result, the value of US government bonds is expected to

Select one:

a.

increase

b.

stay the same

c.

the impact is impossible to determine

d.

decrease

Manufacturing company borrows 10 million euros from the bank to fight the consequences of the corona virus. The repayment schedule is based on an annuity. The interest rate is 6% and the loan is paid back with 4 annual payments.

Question:

* What is the loan balance immediately the first loan payment is made?

(Please present your answers by rounding up to thousands and use thousands as unit of measurement. For example the answer 250920 should be written as 251)

Which of the following investment opportunities has the lowest effective annual return?

Select one:

a.

An investment, which pays 8% nominal interest rate with annual compounding

b.

An investment, which pays 8% nominal interest rate with monthly compounding

c.

There is not enough information to compute effective annual return (EAR)

d.

An investment, which pays 7% nominal interest rate with daily compounding

The company's sales revenue forecast for next year is 1.8 million euros. The net profit margin is estimated at 6%. The company's total assets are forecasted to be 4.0 million euros. Finally, Debt to equity ratio (D/E) is equal to 1.25. Find the company's approximate ROA?

(Please indicate the answer rounded to nearest whole number without percentage mark. For example for ROA=12.461% or ROA= 0.12461 answer should be entered as 12)

The risk-free rate for the next year is 3%, and the market risk premium is expected to be 6%. The beta of XYZ stock is 1.5. If you believe that XYZ’s stock will actually return 12% over the next year, then according to the CAPM you should:

a.

buy the stock because it is under priced.

b.

be indifferent between buying and selling the stock.

c.

sell the stock because it is overpriced.

d.

Sell the stock because it has higher than average systematic risk

Which of the following actions directly decreases the cash conversion cycle (CCC) in a company?

Select one:

a.

Paying back long term bank loan

b.

Extending longer payment periods to the company customers

c.

Paying the suppliers takes less time than before

d.

Increase in the turnover of inventories

Answer 1

Answer 1) Option C is the correct choice

Given,

Revenue	200
Cash Operating costs	120
Depreciation	20
EBT	60
Tax &25%	15
Net Income	45

OCF = EBIT *(1-T) + Depreciation

= 60*(1-0.25) + 20 = 65

Answer 2) Option A is the correct choice

Given,

Stock A, beta = 1, Rm = 15%

CAPM = Rf + Beta *(Rm -Rf)

case a) lets assume Rf = 5%

5% + 1*(15%-5%) = 15%

case b) lets assume Rf = 2%

2% + 1*(15%-2%) = 15%

from above two cases, we can conclude that irrespective of risk free rate, if beta is one then stock will have atleast 15% return

Answer 3)

Borrowong = 4 million euros
Repayment = 4 years based on annuity
Interest rate = 8%

Here, we need to calculate the annuity factor

The annuity factor itself is calculated as:
AF = (1 – (1+r)-n ) / r

AF =((1-(1+8%)^-4 ))/8%

AF = 3.31

Now, annual instalment can be calculated with below equation,

Instalment = Principal / annuity factor = £4m / 3.31 = £1.208m

There are four payments of £1.208m each.

Therefore, the total repayments = £1.208m x 4 = £4.832m

And the total interest charges for four years = £4.832m - £4m = £0.832m

£0.832 is total across each of the four years.

Interest charge for the first year at 8% interest rate,
0.08 x £4m = £0.32m

Therefore, closing balance for the first year is (In thousands):
Opening balance + interest – instalment = 4000+ 320-1,208 = £3112

Answer 4) Option d is the right choice,

Effective annual rate = (1+ Nominal rate / no of compoundings) ^ (no of compoundings) - 1

Option a) EAR = 8% as it is.

Option b) 8% comounded monthly,

EAR = (1+8%/12)^(12) - 1 = 8.3%

Option d) 7% comounded daily,

EAR = (1+7%/365)^(365) - 1 = 7.25%

From above three options we can conclude than 7.25% is the lowest effective interest rate hence option d is the right option.