What can you say about a share for which the

Question What can you say about a share for which the standard deviation of the return is high, and the β is low?

The more debt a firm uses, the greater its financial

Question The more debt a firm uses, the greater its financial leverage, which magnifies both risk and return. Discuss the relationship between debt and financial leverage and the ratios used to analyze a firm’s debt.

Mr Jones earns $80,000 per annum. He has a $300,000

Question Mr Jones earns $80,000 per annum. He has a $300,000 personal mortgage with repayments of $32,000 per annum. The interest rate is 5% per annum (so the interest component is $15,000).a)How many years will it take to pay off the loan?Mr Jones has the opportunity to invest into an Australian Unit Trust that will pay 7% interest per annum, with no capital gains. Mr Jones has been advised to make interest only payments on his personal mortgage and invest the balance of what he is repaying now ($17,000) into this Unit Trust investment. b)Using a graph, show Mr Jones which option is best over a 20 year period.c)What rate of return would the investment need to generate for the two options to be equal?If it is required, assume that the tax rate is a flat 30%.

Warren Buffet has one of the best investment records in

Question Warren Buffet has one of the best investment records in history with a compound annual return (also known as Geometric Average, GA, Annual return) of Berkshire Hathaway stock (BRK) of 22.8% per year from 1974 to 2015 compared to 8.50% per year for a portfolio of large firms (LSTK)). Based on the above returns, what would be the value in 2015 for an investment of $1000 in 1974 for BRK and for LSTK? Assume that the investment is made on January 1, 1974 and the values are for January 1, 2015.

Can anyone explain how to calculate the percentage return and

Question Can anyone explain how to calculate the percentage return and how to consider questions like this one? src=”/qa/attachment/9517016/” alt=”20190825235549.png” />from holding only a) the call option b) the put option ATTACHMENT PREVIEW Download attachment 20190825235549.png (6) Call and put options on the Euro in Chicago are available with the following specifications: Strike Price : 1.305 Call Premium : 1.43c Put Premium : 0.16c Today’s spot price of the Euro is EUR/USD 1.3163 If the spot price of the Euro turns out to be EUR/USD 1.275 at expiry what is the percentage return to a speculator from holding only

Netflix common stock has a beta, b, of 0.8. The

Question Netflix common stock has a beta, b, of 0.8. The risk-free rate is 3%, and the market return is 10%. Determine the risk premium on Netflix common stock.Determine the required return that Netflix common stock should provide.Determine Netflix’s cost of common stock equity using the CAPM.

Currently, Warren Industries can sell 15-year, $1,000-par-value bonds paying annual

Question Currently, Warren Industries can sell 15-year, $1,000-par-value bonds paying annual interest at a 7% coupon rate. Because current market rates for similar bonds are just under 7%, Warren can sell its bonds for $1,010 each; Warren will incur flotation costs of $30 per bond in this process. The firm is in the 40% tax bracket.Find the net proceeds from sale of the bond, Nd.Show the cash flows from the firm’s point of view over the maturity of the bond.Calculate the before-tax and after-tax costs of debt.Use the approximation formula to estimate the before-tax and after-tax costs of debt.Compare and contrast the costs of debt calculated in parts c and d. Which approach do you prefer? Why?

Dillon Labs has asked its financial man-ager to measure the

Question Dillon Labs has asked its financial man-ager to measure the cost of each specific type of capital as well as the weighted average cost of capital (WACC). The WACC is to be measured by using the following weights: 40% long-term debt, 10% preferred stock, and 50% common stock equity (retained earnings, new common stock, or both). The firm’s tax rate is 40%. Debt The firm can sell for $1,020 a 10-year, $1,000-par-value bond paying annual interest at a 7% coupon rate. A flotation cost of 3% of the par value is required. Preferred stock An 8% (annual dividend) preferred stock having a par value of $100 can be sold for $98. An additional fee of $2 per share must be paid to the underwriters. Common stock The firm’s common stock is currently selling for $59.43 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.70 ten years ago to the $4 dividend payment that the company just recently made. If the company wants to issue new common shares, it will sell them $1.50 below the current market value to attract investors, and the company will pay $2 per share in flotation costs.Calculate the after-tax cost of debt.Calculate the cost of preferred stock.Calculate the cost of common stock (both retained earnings and new common stock).Calculate the WACC for Dillon Labs.

On August 10, 2015, Buffett announced that BRK would acquire

Question On August 10, 2015, Buffett announced that BRK would acquire Precision Cast Parts (PCP). Based on Buffet’s bid, what was the enterprise value of PCP? Refer to footnotes. (Footnotes copied below)1 The difference between enterprise value and equity value is the amount of debt outstanding. On August 10, 2015, PCP’s debt amounted to about $4.9 billion—this differs from the debt indicated in Exhibit 9, which was dated March 31, 2015. 2 Tomi Kilgore, “Warren Buffett’s $3.72 Billion Buy of Precision Castparts is His Biggest Buyout Ever,” Marketwatch, August 10, 2015 http://www.marketwatch.com/story/warren-buffetts-372-billion-buy-of-precision-castparts-is-his-biggest-buyout-deal-ever-2015-08-10 (accessed Dec. 12, 2016). 3 Each Class A common share is entitled to one vote per share. Class B common stock possesses dividend and distribution rights equal to one-fifteenhundredth (1/1,500) of such rights of Class A common stock. Each Class B common share possesses voting rights equivalent to one-ten-thousandth (1/10,000) of the voting rights of a Class A share. 4 The per-share change in Berkshire Hathaway’s Class A share price at the date of the announcement was $1,895. The company had 811,755 Class A shares outstanding and 1,247,366,163 Class B shares outstanding. Class B common shares are equivalent to 1/1500th of Class A common shares.5 The per-share change in PCP share price after the announcement was $37.28. The stock closed at $193.88 on August 7, 2015, and opened on August 10, 2015, at $231.16. 6 In comparison, the annual average total return on all large stocks from 1965 to the end of 2014 was 9.9%. (See Warren Buffett, annual letter to shareholders, 2014.) 7 Warren Buffett, annual lett

Chapter 19:Discuss the pros and cons of a MNC having

Question Chapter 19:Discuss the pros and cons of a MNC having a centralized cash manager handle all investment and borrowing for all affiliates of the MNC versus each affiliate having a local manager who performs the cash management activities of the affiliate. Chapter 21:Compare and contrast the three basic types of taxation that governments levy within their tax jurisdictions.

Performance of Buffet’s investments. One of the stocks owned by

Question Performance of Buffet’s investments. One of the stocks owned by BRK is Coca-Cola (KO) (Apparently Buffett drank five cans of Chery Coke each day!), which Buffett purchased on January 1, 1988 for $2.45 per share. On January 1, 2018, the shares were worth $42.70 (including dividends). What is the simple (Arithmetic, AA) and compound (Geometric, GA) average annual returns for this investment?

In 2006 and​ 2007, Kenneth Cole Productions​ (KCP) paid annual

Question In 2006 and​ 2007, Kenneth Cole Productions​ (KCP) paid annual dividends of $ 0.71. In​ 2008, KCP paid an annual dividend of $ 0.38​ and then paid no further dividends through 2012. Suppose KCP was acquired at the end of 2012 for $ 14.97 per share.a. What would an investor with perfect foresight of the above be willing to pay for KCP at the start of​ 2006? ​(Note​: Because an investor with perfect foresight bears no​ risk, use a​ risk-free equity cost of capital of 4.7 %​.) What is the present value of cash flow rounded to the nearest cent. b. Does your answer to ​(a​) imply that the market for KCP stock was inefficient in​ 2006?

The standard deviation of the earnings on State Bank of

Question The standard deviation of the earnings on State Bank of India shares is 40%, while for Siemens it is only 28%. However, State Bank of India has a β of 1.13 and Siemens of 1.7. Explain how this is possible.

the value of a floating-rate bond always equal to 100%?

Question  the value of a floating-rate bond always equal to 100%? Why?

What conditions are necessary for a risk-free asset to be

Question What conditions are necessary for a risk-free asset to be free of risk? Provide an example. Is it really risk-free?

Under what circumstances can the risk of a portfolio be

Question Under what circumstances can the risk of a portfolio be less than the individual risk of each of the securities it contains?

what does it mean when a source of financing is

Question what does it mean when a source of financing is cheap?

What risk are we talking about when we say that

Question What risk are we talking about when we say that government bonds are risk-free?

In what situation can a floating-rate bond trade at much

Question In what situation can a floating-rate bond trade at much less than 100%?

How many costs of capital are there in a company

Question How many costs of capital are there in a company that has diversified into different (business) sectors but not geographic areas? What about if it has done so within each of the company’s divisions

Security A carries little risk and security B has great

Question Security A carries little risk and security B has great risk. Which would you choose if you wanted to take the least risk possible?

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