Reference no: EM13333641
1. Evaluate the effectiveness of the capital asset pricing model (CAPM) as a financing pricing tool and critique it in terms of its core assumptions and how these serve to potentially undermine the validity of risk premiums calculated by using the model.
2. You have recently been appointed the CFO of a start-up tech company with the intellectual property (IP) rights for an extremely lucrative new software service. The firm has $500,000 in equity from venture capitalists (for 50% of the equity) who demand a return of 15% p.a. There is an option to pay back up to $250,000 within the first two years if this is not required.
The remaining equity is owned by the CEO/Managing Director.
First year costs are estimated at $500,000, decreasing to $400,000 in the second year and $300,000 each year thereafter. Income is forecast flat at $500,000 p.a. indefinitely.
The cost of debt (pre-tax) for the firm is 10%, according to the firm’s bank, A Bank. A Bank has also expressed an interest in lending to the firm, but it will only lend up to two times the firms most recent net profit after tax.
Describe how you would finance these operations at the point of start-up (time zero) and justify your choices.
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Calculate the fair present values of the bonds
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Evaluate the effectiveness of capital asset pricing model
: Evaluate the effectiveness of the capital asset pricing model (CAPM) as a financing pricing tool and critique it in terms of its core assumptions and how these serve to potentially undermine the validity of risk premiums calculated by using the model..
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Calculate the price and modified duration of the three bonds
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How many years do the bonds have left until they mature
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Explain what mass of solution contains
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