Practice Solutions

FarCry Industries, a maker of telecommunications equipment, has 2 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 10,000 bonds. Suppose the common shares sell for $27 per share, the preferred shares sell for $14.50 per share, and the bonds sell for 98 percent of par. What weight should you use for preferred stock in the computation of FarCry's WACC? (Round your answer to 2 decimal places. Write your answer in percentage.)

Please no written by hand and no emage Picture yourself as the Chief Financial Officer (CFO) of a family-owned firm. You have one year in that position and you have earned the trust of the owners and the General Manager. Your analysis of the financial situation of the firm leads you to conclude that there is a $1 million surplus that you must invest in only one financial instrument and for a period of one year. These are your options: Bank A is a large, traditional commercial bank that serves loans to varied customers – oil and gas companies, real estate, retail, pharmaceutical companies and so on. It also provides loans to dozens of small manufacturers which employ thousands of workers and which produce parts for larger corporations of the defense industry. Bank A offers you a Certificate of Deposit that pays 8% a year. That is, after 12 months, you can redeem your certificate of deposit and collect $1,080,000. Bank B is a smaller bank specialized in extending so called “green loans.”…

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Which statement is incorrect related to financial intermediaries (institutions)?    a. They are firms that specialize in financial intermediation - a process of borrowing funds from SSUs and lending such funds to the DSUs. b. The main objective of financial intermediaries is to convert savings from SSUs into investments. c. They are the biggest investors in equity securities in the PSE d. They offer the highest returns and lowest risks when compared to alternative investments available to SSUs. e. none of the above

QUESTION THREE A. What is meant by asymmetric information? B. Z Ltd has a K1million bond issue outstanding. If deposits earn 8 percent per annum, calculate the amount that can be deposited annually to a sinking fund in order to accumulate enough money to retire the entire K1million issue at the end of 20 years. C. Mutale has just borrowed an amount of K5,000 to pay his school fees. The loan is to be repaid in equal installments at the end of each of the next 3 years and the interest rate is 15%. Mutale is interested to know the repayment implications on this loan in terms of the total amount that will be paid on the loan and the breakdown between the principal amount and interest payments over the 3 years. Draw out a table that will help Mutale understand the loan implications. D. Mubita is contemplating on investing in Stocks A and B with the following probability distributions of possible future returns: Probability (Pi) 0.1 0.2 0.4 0.2 0.1 Page 2 Stock A (%) 15 0 5 10 25 Stock B (%)…

Using the graph below please answer questions a) - b): Value of Firm Assets $ 10 M a. Draw a graph for the value of the stake of shareholders of company XYZ at maturity of the debt. Be specific, indicate all important points and values on the graph, label th b. Suppose that assets of XYZ can take the following values at maturity of debt: Probability 30% 35% 20% 15% Value $35M $ 20 M $ 10 M $7 M 1. Calculate the Expected Value of Debt of XYZ at maturity of the debt. 2. Calculate the Expected Value of Equity of XYZ at the time of maturity of the debt. Value of the Stake of Bondholders of company XYZ at maturity of the debt

7. Even if we can't exactly establish the actual cost of a stock out,  in most cases we can still determine an appropriate level for safety stock.  True False

What is the principal-agent conflict in corporate governance? How can it be mitigated? Please also elaborate in particular on the role of the board of directors and what is / should be their function in this context.

470 7 Which of the following is not an implication of the EMH? a. to do superior industry or company analysis, one must understand the variables that affect returns and do a superior job of estimating these variables b. aggregate market analysis that involves very detailed analysis of reliable historical economic data should outperform a simple buy and hold policy. c. a superior analyst is one who can consistently select stocks that provide positive abnormal returns on a risk adjusted basis. d. if a portfolio manager does not have any superior analysts, they should consider investing funds in a index fund e. if a portfolio manager has some superior analytical skills, they should be encouraged to concentrate in second tier stocks that have liquidity but may be neglected.

Which is not a characteristic of common stock ownership? O eligible to vote on corporate matters O right to receive interest payments residual claimant on corporate assets and profits entitled to dividend payments if declared by board of directors

SingComp-AI (“SCAI”) is a Singapore-based startup which develops compliance technology driven by artificial intelligence (“AI”) for financial institutions in Singapore. Compliance technology helps financial institutions in their adherence to applicable laws and regulations, as well as identifying and managing compliance-related risks. In the first year of its operations, SCAI assembled a competent team of professionals to help build its AI infrastructure and to support its growth. Marisa, an AI professional, was hired to head the product development team, and she is widely recognized as one of the key contributors to SCAI’s early success. In SCAI’s second year of operations, Marisa tendered her resignation. It was revealed that Marisa will be joining a rival company called “Eye-Tech” (“ET”), which upset the management of SCAI greatly. ET operates in the same business niche as SCAI, and is also looking to develop similar AI-driven compliance technology for financial institutions. Given…

Differentiate the rights of common shareholders with the rights of preferred shareholders. Please list at least three rights of each type of stock

Am. 290.

Person A, Person B and Person C own stock in the same company. All of them are loss averse and have the same value function: v(x) = x/2 for gains and v(x) = 2x for losses. The stock's price is shown in the graph below (a) 100 90 80 70 60 50 40 30 20 10 0 60 90 Stock Price 95 70 50 October November December January Feburary 80 March Person A bought the stock in November and uses the purchase price as their reference point. If you ask them, how much would they say that they lost in terms of value when the price dropped from £95 to £70? (b) Person B bought the stock in October and uses the peak price as their reference point. If you ask them, how much would they say that they lost in terms of value in January? (c) In January, which month should Person B rather use as reference point in order to maximize their value? (d) [ Person C bought the stock in March. They expect to derive a value of at least +5 in April as compared to their reference point of the purchase price. What is the minimum…

How would each of the following actions be expected to affect shareholder wealth?a. Southern Company adopts fuel-switching technology at its largest power plants.b. Ford Motor Company pays $2.5 billion for Jaguar.c. General Motors offers large rebates to stimulate sales of its automobiles.d. Rising interest rates cause the required returns of shareholders to increase.e. Import restrictions are placed on the French competitors of Napa wineries.f. There is a sudden drop in the expected future rate of inflation.g. A new, labor-saving machine is purchased by Wonder Bread and results in the layoff of 300 employees.

5. Identify the type of specialized investment that each of the following situa- tions requires. a. You hire an employee to operate a machine that only your company uses. b. An aerosol canning company designs a filling line that can be used only for a particular firm's product. c. A company builds a manufacturing facility across the street from its pri- mary buyer. 6. Under what conditions might the Justice Department approve a merger between two companies that operate in an industry with a premerger Herfindahl- Hirschman index of 2,900 if the postmerger index is expected to increase by 225?

stion 20 of 41 > You have some money to invest, and you don't really care about risk-the return is your sole focus. Which investment would probably be the most attractive to you? corporate bonds with a CCC rating corporate bonds with an AA rating government bonds large company stocks

What were the main issues on corporate governance included in the Companies Act of 2013 read with clause 49 of SEBI?

b) You need to analyse the type of investment skills the fund managers have employed and suggest how improve the funds's performances in the future. Below is the historical performance for two (2) different funds, the Kuala Lumpur composite Index (KLCI) and the 30-days Malaysia Treasury bill. Employ the data and analyse according to the questions below: Investment fund Average rate of return Standard deviation Beta CIMB Small cap fund 25.5% 18% 1.45 Public Bank fund 20% 13% 0.8 KLCI 18% 15% 30 days-T-Bill 2.4% 0% i) Calculate the fama overall performance measure for both funds Compute the expected return to risk for both fund ii) ii) Compute the measure of selectivity, diversification, and net selectivity

An Indian approach to global M&A: An interview with the CFO of Tata Steel Koushik Chatterjee discusses the Indian multinational’s approach to outbound M&A—and its response to the global financial crisis. Richard Dobbs and Rajat Gupta .0/msohtmlclip1/01/clip_image002.jpg”> 2 Long a major force in India,the Tata Group is quickly establishing a global presence.With a combined market capitalization of more than $32 billion and operations in every major international market, Tata owns companies in businesses as diverse as consumer products, energy, engineering, information systems, communications, services, and materials. The group’s largest business, Tata Steel, was established in India in 1907 and retains its headquarters in Mumbai. In recent years, the company has expanded both within Asia (by acquiring Thailand’s Millennium Steel, now called Tata Steel Thailand, and Singapore’s NatSteel…

Which statement is incorrect?a. When a company increases its degree of financial leverage, the standard deviation of returns on equity of the a. company rises.b. An increase in the corporate tax rate is likely to encourage a corporation to increase the proportion of debt in its capital structure.c. Generally, firms with a faster growth rate have greater earnings retention ratio.d. A corporation's purchase of its own previously issued shares will generally have a negative impact on its price.none of the above

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When the economy is expected to enter into a recession, a BB rated bond would A be impossible to sell B show a higher yield than when the economy was stronge C likely default very soon D be converted to a zero-coupon bond

Identify two (2) derivative investment products and how they allow investors to hedge against risk while creating unnecessary risk to the global economy.