Reference no: EM132319947

Question 1:

1. Thirteen year ago, you deposited $2400 in a superannuation fund. 8 year ago, you added an additional $1000 to this account. You earned 8% Compound annually for 1st five years and 6% Compound annually for last 8 years.
 
Required:

(a) Compute the effective annual intrest rate you got in the last eight years.

(b) How much money do you have in your a/c today?

(c) If you wish to have $10,000 in the Superannuation fund today, what would be the intrest rate(Compounging annually) be in the last 8 years?

(d) Assume that from now on, you will put exactly $5000 into Superannuation fund at the end of each year. Compute the amount of moeny you would accomulate at end of year 10, that cash flow only if the rate of return is 9%- semi-annually compounding.

(e) Compute the amount of moeny you would accumulated by the cash flow in 15 year if the 5000$ is put into your account at the begining of each year. the same intrest rate of 9% semi-annually compouding still applies.

(f) When you retire, if the Superannuation fund starts to pay the income of $25,000 per year forever. Compute the present value of that income flow at the first day of your retirement if the rate of return is 5%.

Question no. 2:

You are a financial investor who actively buys and sells in the securities market. Now you have a portfolio of all blue chips, including $11600 of share A, $7800 of share B, $14900 of share C and $3200 of share D, respectively.

(a) Compute the wight of assestes in your portfolio.

(b) if your portfolio has provided you with returns 7.6%, 12.2%, -4.7% and 13.4% over the past four years respectively. Calculate the geometric avarage return of the portfolio for this period.

(c) Assume that expected return of stock A in your portfolio is 15.2%. The risk premium on the stock of the same industry are 4.8%, Betas of these stocks is 1.3 and the inflation rate was 4.7%. Calculate the risk free rate of return using Capital Market pricing Model(CAPM).

(d) You have another Portfolio that Comprises of two shares only. 1200 Golden sand shares and 400 silver beach shares. Below is the data of your portfolio.

Expected Return                          12%    17%

Correlation of Coeffiecient(p)          20%   40%

Compute the expected return of your portfolio.

(e) Compute the expected risk (standard deviation) of Portfolio.

(f) You bought those two shares two years ago with total investment of $16,000. Golden Sand paid a dividend of $4.4/share per year. Silver Beach paid a dividend of $7.5/share per year. Calculate your total Capital gain of this portfolio if you today can sell Golden Sand for $12 per share and Silver black for $18 per share.

Question 3:

Billabong Ltd Currenlty has the following Capital structure.

Debt: $4000000 Outstanding bond that pays annually 9% Coupon rate with an annual before tax yield to matority of 8%. The bond issue has face value of $1000 and will Mature in 15 years.

Ordinary shares: 60000 outshanding ordinary.

The firm expects to pay $8.50 divided per share one year from now is expericing 5%, annual growth rate in dividends which it expects to continue indefinitely.

The firm's marginal tax rate is 30%.

Required:

(a) Calculate the Current price of Corporate bond.

(b) Calculate the current price of Corporate bond share of the average return of the share in the same industry is 11%.

(c) Calculate the current total market value of the firm.

(d) Calculate the capital structure of the firm by identifying weight of debt financing and weight of share financing?

(e) Compute the weighted average cost of capital (WACC) under the traditional tax for the firm using dividend constant growth model for calculation of cost equity.

(f) Assume that the company decided to convert their bond to a prefrence share with the same face value which promises an income of 15% fixed dividend each year. Compute present value of that prefrence share if expected return of this type of prefrence share is 12%.

Question no 4:

Black gold ltd. is planning a new investment project that requires a cost of %5,000,000. The firm plans a capital structure of 40% equity and 60% debt to finance this project. The firm currently have net income of $3,500,000.

To undertake the investment project, two options are under the firms consideration, option A and option B. the firm can accpt either option A or option B but not both. Each project option will last 5 years and have no salvage value at the end. The Company's required rate of return for all investment project is 8%. the cash flows of the options are provided below:

Cost	Option A	Option B
Future cash flows	178000	187000
Year 1	$40,000	47000
Year 2	$52,000	64000
Year 3	$55,000	52000
Year 4	$57,000	54000
Year 5	$43,500	36000

Required:

(a) Determine the dividend amount, if any can be paid out of shareholders by applying the residual theory.

(b) Calculate the dividend payout ratio.

(c) Identify which project should the company accept based on payback period of the caseline for payback is maximum 3.5 years.

(d) Identify which project should the compnay accept based on net present value (NPV) method. [Note: round up the result of each calculation of NPV to 6 digit for simplify]

(e) If considering both method which option the company should choose.