Answered: 1. Discuss briefly about: 1.1. The…

1. Discuss briefly about: 1.1. The importance of financial management in construction project management 1.2.The purpose of investment appraisal in construction industry

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.5P

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An investor has $24,000 to invest in bonds of AAA and B qualities. The AAA bonds yield an average of 6% and the B bonds yield 10%. The investor requires that at least three times as much money should be invested in AAA bonds as in B bonds. How much should be invested in each type of bond to maximize the return? What is the maximum return? Define the variables needed to solve this problem. Organize your given information. (This part NOT graded, but encouraged.) Write the complete linear programming problem, which includes the objective function and all constraints. Graph and make sure all lines are labeled and shaded/solution region is clear and easy to identify. Create a corner point chart. Remember to mark your solution. Answer in a complete sentence or two: How much should be invested in each type of bond to maximize the return? What is the maximum return?
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
Consider company ABC. Today it is 1st of January 2023 and ABC has just paid a dividend of £3 million. The expected earnings of ABC for the next 30 years are forecast to grow at a rate of 15% per annum. From 1st of January 2053 and onwards the earnings of ABC are expected to grow at a rate of 5%. The required rate of return of ABC is 12% per annum. The current dividend policy of ABC is such that they pay out 50% of its earnings as dividends (assume that they pay their dividends on 1st of January every year). a) Suppose that the dividend payout ratio is expected to stay constant in the future. What is the value of ABC stock? Show and explain your calculations and any assumptions you make. b) Just after the dividend payment on 1st of January 2043, ABC is planning to reduce their dividends and only pay out 40% of its earnings. What is the value of ABC under the new dividend policy? c) Provide a recommendation to the management of ABC as to whether they should increase/cut back on…
What is capital recovery? A.The income recognized from insurance proceeds received after a capital asset is lost due to a casualty such as theft or fire. B. Matching the income you make from using capital assets with the expenses representing the use of the assets producing the income. C.Using a capital asset that had been previously taken out of service, but is now in use again. D. When the cost of capital assets exceed the gross revenue in the acquisition year.
Firms A and B are identical except for their capital structure. A carries no debt, whereas B carries £60m of debt on which it pays a 5% interest rate. Assume no transaction costs, no taxes and risk-free debt. The relevant numbers are provided in the following table (in £ m): A B Value of Firm 100 120 Debt 0 60 Equity 100 60 Projected earnings before interest 12 12 Interest payment 0 3 Interest rate Not Applicable 5% Please answer the following questions a) "The situation described in the table is consistent with the absence of arbitrage opportunities". True or False (T/F)? b) Which one of the two firms is relatively overvalued (A/B)? c) "B's shares carry more risk than A's shares". True or False (T/F)? d) What is the return to an investor holding a 10% stake in B (in £ '000)? e) Consider an investor who wants to purchase a 20% stake in A. If he wished to replicate B's capital structure through homemade leverage,…
1. Choose all of the correct items that you think companies would consider when choosing a MARR for a particular project: Group of answer choices A. Their cost of borrowing money from a bank B. Their cost that their financial team thinks they can issue new bonds C. The prevaling rates of return of their competitors stock D. The relative risk of this particular project 2. Procter and Gamble reports a large number of financial metrics including ratios like Return on Equity, and Gross Margin, and many others. What are some reasons that they report these metrics? (Mark all that are correct) Group of answer choices A. They want to have a way of comparing their performance against their competitors . B. They want to see if their total sales went up, but their costs went up even more so their profitability decreased C. They want to see before COVID and after COVID financial ratios to see what impact it had on their finances D. They want to determine if they are meeting their goals for…
Wu of Troy, New York, has $5,000 that he wants to invest in the stock market. Ji is in college on a scholarship and does not plan to use the $5,000 or any dividend income for another five years, when he plans to buy a home. He is currently considering a small company stock selling for $25 per share with an EPS of $1.25. Last year, the company earned $900,000, of which $250,000 was paid out in dividends. What classification of common stock would you recommend to Ji? Calculate the P/E ratio and the dividend payout ratio for this stock. Round your answers to the nearest whole number c3.Given this information and your recommendation, would this stock be an appropriate purchase for Ji? Why or why not?
The board of directors of Divided Airlines has declared a dividend of $2.50 per share pay able on Tuesday, May 30, to shareholders of record as of TuesdayMay 9. Cal buys 100 shares of Divided on Tuesday, May 2, for $ 150 per share. What is the ex date? Describe the events that will occur with regard to the cash dividend and the stock price.
A share of stock of A-Star Inc. is now selling for $23.50. A financial analyst summarizes the uncertainty about the rate of return on the stock by specifying three possible scenarios: Business Condition Scenario, s Probability, p(s) End of Year Price Annual Dividend High growth 1 0.35 $35 $ 4.40 Normal growth 2 0.30 27 4.00 No growth 3 0.35 15 4.00 What are the holding-period returns for a one-year investment in the stock of A-Star Inc. for each of the three scenarios? Calculate the expected HPR and standard deviation of the HPR.
Question: Common stock value – All growth models. Personal Finance Problem. You are evaluating thepotential purchase of a small business currently generating $40,000 of after-tax cash flow. Thecompany has $25,000 of Preferred Stock and $150,000 of debt.(FCF0 = $40,000). On the basis of a review of similar-risk investment opportunities, you must earn arate of return of Common stock value – All growth models. Personal Finance Problem. You are evaluating thepotential purchase of a small business currently generating $40,000 of after-tax cash flow. Thecompany has $25,000 of Preferred Stock and $150,000 of debt.(FCF0 = $40,000). On the basis of a review of similar-risk investment opportunities, you must earn arate of return of 9% on the proposed purchase. Because you are relatively uncertain about future cashflows, you decide to estimate the firm’s common stock value using three possible assumptions aboutthe growth rate of cash flows. 1. What is the firm's value if cash flows are expected…
13.3 Ganado’s Cost of Capital. Maria Gonzalez now estimates Ganado’s risk-free rate to be 3.60%, the company’s credit risk premium is 4.40%, the domestic beta is estimated at 1.05, the international beta is estimated at 0.85, and the company’s capital structure is now 30% debt. All other values remain the same as those presented in this chapter in the section “Sample Calculation: Ganado’s Cost of Capital.” For both the domestic CAPM and ICAPM, calculate the following: Sample Calculation: Ganado’s Cost of Capital Maria Gonzalez, Ganado’s chief financial officer, wants to calculate the company’s weighted average cost of capital in both forms, the traditional CAPM and also ICAPM. Maria assumes the risk-free rate of interest as 4%, using the U.S. government 10-year Treasury bond rate. The expected rate of return of the market portfolio is assumed to be 9%, the expected rate of return on the market portfolio held by a well-diversified domestic investor. Ganado’s estimate of…
CONVEX Ltd. is a new company that was established on 1st January, 2020 to oversee the production of coronavirus vaccines for Ghana. On 1st July, 2020, CONVEX Ltd. acquired 75% shares in CONCAVE Ltd., a pharmaceutical company, to speed up the vaccine production. As a new graduate from UGBS, CONVEX Ltd. has employed you as their accountant. At a management meeting held, a number of issues were raised about how CONVEX Ltd. should deal with its transactions and investment in CONCAVE Ltd. and the need to conduct financial ratio analysis to determine the profitability and sustainability of CONCAVE Ltd. In a memo to management, provide your views on how the following issues should be addressed. Issue DAssuming you have done the financial ratio analysis and you have realized that profitability is looking good but liquidity is not impressive and needs urgent attention. What do you think could be the problem with CONCAVE Ltd. that your company needs to help them address?