1. Consider that an investment offers you a perpetual cash flow of $4750 and the required rate of return on the desired investment is 7%. Calculate the value of the perpetuity.
2. There are three banks which offers three different rates i.e.
Bank 1 offers 15% which is compounded daily
Bank 2 which offers 15.5% which is compounded quarterly
Bank 3 which offers 16% which is compounded annually
Which of these above banks is the best option to open a saving account and for borrowing. Justify your answer with appropriate reasoning and calculation
3. Determine the expected value and standard deviation of the returns of portfolio X and Y. Each of the two assets holds equal weights i.e. 50% each. The table below states the forecasted returns of both assets.
|
Year
|
Forecasted Returns
|
|
|
Asset X
|
Asset Y
|
|
2010
|
12%
|
16%
|
|
2011
|
11%
|
18%
|
|
2012
|
14%
|
12%
|
|
2013
|
16%
|
8%
|
|
2014
|
14%
|
10%
|
4.Suppose you have purchased an equipment of $95000, which has a salvage value of $5000 and is depreciated at a straight line method for next 5 years. With the adoption of machinery the company is able to increase its sales by $42000 for next 5 years, the operating expenses incurred is $15000 with an expected growth of 2% per year for next 5 years. The tax rate is of 35%.
The equipment is sold at the end of 5 years at its salvage value.
Considering the cost of capital to be 12%
Calculate NPV and IRR of the given project.
5. Calculate the present value of the stock, if the company has just paid the dividend of $1.20 which is expected to grow at 5% annually, the beta of the stock is 1.2 and the expected market rate of return is 12%, the risk free rate is 5%.
6.Suppose Mr. X needs to have $45000 at the end of 8 years, How much should he deposit in bank yearly, if the interest earned on the amount is 9%
7.Company XYZ has 1.4 million shares outstanding with a market value of $20 per share. Company has just declared an dividend of $1.25 on Preference shares which are being sold at $25, the total value of preference shares is $2 million. The firm's debt is publically traded and has been quoted at 93% of the face value, the face value of the debts is $5 million, which yields 11%.
The risk free rate is 8% and the market risk premium is 7%, the estimated beta of the company is .74. The corporate tax of the company is 35%. Calculate the WACC of the company.
8. Calculate the ratios following ratios of Starbucks for the Financial year 2010:
a. Current Ratio
b. Net Profit Margin
c. Return on Assets
d. Return on Equity
e. Debt ratio
f. Interest Coverage Ratio
g. Asset Turnover
h. Accounts Receivables turnover
i. Inventory turnover.