It can borrow $4,800,000, the purchase price, at interest rate of 10% and buy the tools. The loan payments would be made at the end of each year. If it decides to lease or it can make 3 equal end-of-year lease payments of $2,100,000 each and lease them. The loan obtained from the bank is a 3-year simple interest loan, with interest paid at the end of the year. The firm’s tax rate is 40%. The Total Cash Outflows from the Cost of Purchase are the following: (Year 1)+208; (Year 2) +208; (Year 3) -4,592; all occurring at the end of respective years.
Calculate the leasing cash outflows, and compare the Present Values. What is the net advantage to leasing (NAL), in thousands? (Suggestion: Delete 3 zeros from dollars and work in thousands. ) (a) $96 (b) $106 (c) $112 (d) $117 (e) $123 (Points : 20) 4. (TCO I) Suppose 90-day investments in Britain have a 6% annualized return and a 1. 5% quarterly (90-day) return. In the U. S. , 90-day investments of similar risk have a 4% annualized return and a 1% quarterly (90-day) return. In the 90-day forward market, 1 British pound equals $1. 65.
If interest rate parity holds, what is the spot exchange rate? (a) 1 pound = $1. 8000 (b) 1 pound = $1. 6582 (c) 1 pound = $1. 0000 (d) 1 pound = $0. 8500 (e) 1 pound = $0. 6031 (Points : 20) |1. (TCO C) Banerjee Inc. wants to maintain a target capital structure with 30% debt and 70% equity. Its forecasted net income is | |$550,000, and its board of directors has decreed that no new stock can be issued during the coming year. If the firm follows the | |residual dividend policy, what is the maximum capital budget that is consistent with maintaining the target capital structure? | | |(a) $673,652 | |(b) $709,107 | |(c) $746,429 | |(d) $785,714 | |(e) $825,000 (Points : 20) | | | . (TCO F) Warren Corporation’s stock sells for $42 per share. The company wants to sell some 20-year, annual interest, $1,000 par value bonds. Each bond would have 75 warrants attached to it, each exercisable into one share of stock at an exercise price of $47. The firm’s straight bonds yield 10%. Each warrant is expected to have a market value of $2. 00 given that the stock sells for $42. What coupon interest rate must the company set on the bonds in order to sell the bonds-with-warrants at par? (a) 7.
It was a Sunday afternoon, and as I was packing boxes filled with the old toys, which were left over from the clearance sale at my closed down second hand toyshop. I realised that I was also packing away twenty years of my life, which was devoted to setting up and keeping this shop running. I looked around the room taking in the soft blue walls with paint chipping off them, the brightly coloured ...
83% (b) 8. 24% (c) 8. 65% (d) 9. 08% (e) 9. 54% (Points : 20) . (TCO B) Reynolds Resorts is currently 100% equity financed. The CFO is considering a recapitalization plan under which the firm would issue long-term debt with a yield of 9% and use the proceeds to repurchase common stock. The recapitalization would not change the company’s total assets, nor would it affect the firm’s basic earning power, which is currently 15%. The CFO believes that this recapitalization would reduce the WACC and increase stock price. Which of the following would also be likely to occur if the company goes ahead with the recapitalization plan? a) The company’s net income would increase. (b) The company’s earnings per share would decline. (c) The company’s cost of equity would increase. (d) The company’s ROA would increase. (e) The company’s ROE would decline. (Points : 20) 4. (TCO G) Which of the following statements is most CORRECT? (a)
The primary test of feasibility in a reorganization is whether every claimant agrees with the reorganization plan. (b) The basic doctrine of fairness states that all debtholders must be treated equally. c) Since the primary issue in bankruptcy is to determine the sharing of losses between owners and creditors, the “public interest” is not a relevant concern. (d) While a firm is in bankruptcy, the existing management is always allowed to retain control, though the court will monitor its actions closely. (e) To a large extent, the decision to dissolve a firm through liquidation versus keeping it alive through reorganization depends on a determination of the value of the firm if it is rehabilitated versus the value of its assets if they are sold off individually. Points : 20) |1. (TCO I) In 1985, a given Japanese imported automobile sold for 1,476,000 yen, or $8,200. If the car still sold for the same | |amount of yen today but the current exchange rate is 144 yen per dollar, what would the car be selling for today in U. S. dollars? | | | | | |(a) $5. 64 | |(b) $8,200 | |(c) $10,250 | |(d) $12,628 | |(e) $13,525 (Points : 20) | | | 2. TCO H)
The Term Paper on Changes in Inflation Rate and Domestic Interest Rate Cause a Deterioration of a Country’s Balance of Payments Position
Inflation is the general,inordinate and sustain increase in price level. When there is an increase in inflation rate in a country, prices of exports will rise. Hence there will be a fall in the quantity demanded for its exports as it is too expensive for foreign countries to purchase these goods. Assuming price elasticity less than one, this will result in a fall in export earnings, hence leading ...
Which of the following statements is most CORRECT? (a) The acquiring firm’s required rate of return in most horizontal mergers will not be affected, because the 2 firms will have similar betas. (b) Financial theory says that the choice of how to pay for a merger is really irrelevant because, although it may affect the firm’s capital structure, it will not affect its overall required rate of return. (c) The basic rationale for any financial merger is synergy and, thus, the estimation of pro-forma cash flows is the single most important part of the analysis. (d) In most ergers, the benefits of synergy and the premium the acquirer pays over the market price are summed and then divided equally between the shareholders of the acquiring and target firms. (e) The primary rationale for most operating mergers is synergy. (Points : 20) 3. (TCO A) An investor who writes standard call options against stock held in his or her portfolio is said to be selling what type of options? (a) In-the-money (b) Put (c) Naked (d) Covered (e) Out-of-the-money (Points : 20) 4. (TCO F) A commercial bank recognizes that its net income suffers whenever interest rates increase.
Which of the following strategies would protect the bank against rising interest rates? (a) Buying inverse floaters. (b) Entering into an interest rate swap where the bank receives a fixed payment stream, and in return agrees to make payments that float with market interest rates. (c) Purchase principal only (PO) strips that decline in value whenever interest rates rise. (d) Enter into a short hedge where the bank agrees to sell interest rate futures. (e) Sell some of the bank’s floating-rate loans and use the proceeds to make fixed-rate loans. (Points : 20)
Table of Contents 1 Introduction: Australian Economy 2 1. 1 Real Gross Domestic Product 2 1. 2 Inflation 2 1. 3 Employment 3 1. 4 Current Account 3 1. 5 Exchange Rate 3 2 Monetary Policy 5 2. 1 Objectives of Monetary Policies 6 2. 2 Demand for Money 8 2. 3 Supply of Money 10 2. 4 Money Equilibrium 11 2. 5 Effects of Money Supply (Demand) 11 2. 6 Keynesians Vs Monetarists 12 3 Monetary Policy ...