Net Present Value and Question

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SEAT NUMBER: ……….… ROOM: .………………. FAMILY NAME.………….....…………………………. This question paper must be returned. Candidates are not permitted to remove any part of it from the examination room. OTHER NAMES…………….…………………..…….. STUDENT NUMBER………….………..……………..

SESSION 2 EXAMINATIONS NOVEMBER 2012
Unit Code and Name: AFIN252, Applied Financial Analysis and Management Time Allowed: 3 hours plus 10 minutes reading time. Total Number of Questions: 50 Multiple Choice Questions plus 8 full response questions. Instructions: 1. PART A (30 marks): There are 50 multiple choice questions. Answers to these must be recorded on a red-coloured General Purpose Answer Sheet which will be marked by a computer. Please make sure your name is on this sheet.

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Question 6 Coolibah Holdings Limited is expected to pay dividends of $1.13 every six months for the next three years. If the current price of Coolibah stock is $22.40, and Coolibah 's equity cost of capital is 16%, what price would you expect Coolibah 's shares to sell for at the end of three years? A) $26.74 B) $28.82 C) $29.36 D) $31.36 E) $34.96

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Question 7 Ascension Limited will pay a dividend of $1.80 per share one year from today and a dividend of $2.40 per share two years from today. It is expected that Ascension 's share price will be $44 per share immediately after the second dividend payment. If Ascension has an equity cost of capital of 8%, what is the maximum price that a prudent investor would be willing to pay for an Ascension Limited share today? A) $39.27 B) $40.22 C) $41.45 D) $42.40

Question 8 Which of the following statements is FALSE? A) As firms mature, their earnings exceed their investment needs and they begin to pay dividends. B) Total return equals earnings multiplied by the dividend payout rate. C) Cutting the firm 's dividend to increase investment will raise the share price if, and only if, the new investments have a positive net present value (NPV). D) We cannot use the constant dividend growth model to value the shares of a firm with rapid or changing growth.

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Question 9 Bandicoot Enterprises just announced that it plans to cut its dividend (in one year

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