FUNDAMENTALS OF FINANCE
金融基础代写 PART A: SHORT ANSWER QUESTIONS Question 1:How does the yield to maturity on a bond differ from the coupon yield or current yield?
INSTRUCTIONS TO THE CANDIDATE:
The assessment is Remote Examination (Open)
- Students have 3 hours to download, complete, and upload this Word document.
Answers to each question should be recorded inside the indicated textboxes (reduce the font size if you require more space).
- Show all workings for calculations (i.e. baseline formula, substituted inputs, final answer).
- Submissions with pictures pasted inside the indicated textboxes for each question will not be marked – even if these pictures include workings.
- Ensure you correctly reference any cited materials. Inappropriate use of subject content or other sources in your response will be considered a breach of the University’s academic integrity policy.
PART A: SHORT ANSWER QUESTIONS 金融基础代写
(Four short answer questions worth 3 marks each – use dot points if necessary)
How does the yield to maturity on a bond differ from the coupon yield or current yield?
List and explain one method which allows investors to determine whether a corporate bond is sold at a discount, at par, or at a premium.
List and explain the various rights of common stockholders.
Describe why the marginal cost of capital curve (MCC) is usually upward sloping. In your answer, explain why the MCC is usually staggered in steps rather than being a linear upward sloping line.
PART B: LONG ANSWER QUESTIONS 金融基础代写
(Two long answer questions worth 10 marks each)
Describe the process of developing the capital budgeting model using the basic framework provided below. Explain all relevant information as it was presented in the lecture as well as the textbook. In your answer, provide a brief explanation on each of the relevant aspects of the graph.
Discuss three, and no more than three, principles of estimating cash flows. Provide an example of how each principle may be applied in practice.
PART C: CALCULATION & ANALYSIS QUESTIONS 金融基础代写
(Four calculation and analysis questions worth 10 marks each)
Origin Energy Limited has a range of fixed income securities currently outstanding. Five years ago, Origin Energy Limited issued 8.5% per annum coupon rate debentures with 15 years to maturity. The par value of these debentures is $1,000. Origin Energy Limited also has callable preferred stocks currently outstanding. The $1.50 dividends on these preferred stocks are paid, and compounded, semi-annually. These preferred stocks are callable in 3 years at $140 per share plus accrued dividends.
a）What price would Origin Energy Limited’s preferred stocks currently trade at; assuming investors expect them to be called at the call date? Investors currently require 15% per annum, compounding semi-annually, on preferred stocks of this risk. [4 marks]
b）Assuming Origin Energy Limited’s debentures are trading today at $920, calculate the current yield to maturity, compounding annually. Briefly explain in one sentence how you would interpret this result. [4 marks]
c）Given your answer in Part b) and assuming investors currently require a return of 12% per annum on investments of this perceived risk level, should you buy these debentures as of today? [2 marks]
Question 2 金融基础代写
Excel Corporation has recently witnessed a period of depressed earnings performance. As a result, cash dividend payments have been suspended while the firm undergoes a significant strategic shift. Investors now expect dividends to resume two years from today, when a yearly dividend of $0.25 will be paid. The yearly dividends are then expected to grow at a rate of 150% per year for three years. Beyond that time, investors expect Excel’s dividends to grow at an annual rate of 5% into perpetuity. All dividends are assumed to be paid at the end of each year.
a）If you require an 18% rate of return on Excel’s stock, what is the value of one share of this stock to youtoday? [7 marks]
b）How does the value of one share of stock to you today change if you believe the terminal growth rate in dividends is 0% rather than 5%? Support you answer with appropriate calculations. [3 marks]
Question 3 金融基础代写
Seco Dame Enterprises (SDE) acquired a robotic saw six years ago at a cost of $10 million as part of a new fabrication project. The opportunity to replace the existing saw with a newer model is expected to improve the efficiency of the project through to its termination. The current saw has been depreciated to its current book value of $0. Realisable market value today is expected to be $2 million. SDE’s average tax rate is 30%, and its marginal tax rate is 40%. The firm’s weighted cost of capital is 15%.
A new robotic saw will cost $15 million. It will be depreciated on a straight-line basis over 10 years to $0 salvage value. If SDE acquires the new saw, it estimates that its net working capital will decline, due to the reduced need to carry inventories of spare parts for this more reliable machine. Net working capital should decline from a current level of $1 million to a new level of $500,000 as a result of this purchase.
The new saw is expected to reduce operating costs (exclusive of depreciation) for SDE by $800,000 per year over the asset’s expected 10-year life. Also, the increased productivity of the new saw is expected to increase SDE’s revenue by $2 million per year. Realisable market value of the saw on termination of the project in 10 years’ time is expected to be $500,000.
a）Calculate the replacement saw’s net present [5 marks]
b）Should SDE accept the project? Why or whynot? [1 mark]
c）How many internal rates of return does the replacement saw project have? Why? [2 marks]
d）Calculate the replacement saw’s internal rate of [2 marks]
Question 4 金融基础代写
Ohio Valley Power Company has engaged your services as a financial analyst to estimate their cost of capital for use in evaluating future capital investment opportunities. The company’s intended future capital raisings are reflective of their target capital structure.
The company is planning to raise $50 million from the sale of long-term debt instruments. These $1,000 par value long-term debentures are expected to net the company $870 each after issuance costs. In return these debentures will offer bondholders a 10% coupon rate with 15 years till maturity. The company’s marginal tax rate is 40%.
Ohio Valley Power Company is also able to issue $20 million preferred stock. The new preferred stock issuance is expected to be sold at a price of $25 per share. The cumulative preferred stock dividend will be set at $2.75 per annum, with issuance costs expected to be $1 per share.
The company currently has $30 million of retained earnings available for future capital investments. If required, the company could raise additional common equity capital from the sale of new shares. Ohio Valley Power Company’s common stock currently has a beta of 0.8092, with the risk-free return and expected return of the market portfolio being 6.5% and 16% respectively. The company’s share price is currently $40 per share, and the current common stock dividend of $3.50 is expected to grow at a rate of 5% into perpetuity. New shares could be sold to net the company $35 each after issuance costs.
a）Calculate the company’s weighted average cost of capital (WACC). [6 marks]
b）If retained earnings fall below $30 million, the company will sell new shares of common stock to raise equity capital to make up the difference (I.e. to maintain the target capital structure from Part a)). Calculate the breakpoint, and the resulting marginal cost of capital schedule, if the company now only has $10 million of retained earnings available for future capital investments. [4 marks]