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10) A company issues a ten-year $1,000 face value bond at par with a coupon rate of 6.7% paid semiannually. The YTM at the beginning of the third year of the bond (8 years left to maturity) is 8.1% what was the percentage change in the price of the bond over the past two years? A)-6.50% B)-11.38% C)-975% , 8. 13% m 11: A firm issues two-year bonds with a coupon rate of 6.7%, paid semiannually. The credit spread for this firm's two-year debt is 0.8%. New two-year Treasury notes are being issued at par with 1 coupon rate of 3.1% what should the price of the firm's outstanding two-year bonds be per $100 of face value? A) S84.27 B) S126.40 C) $14747 D) S105.34 12) Coolibah Holdings is expected to pay dividends of $1.20 every six months for the next three years. 12) If the current price of Coolibah stock is S2260, and Coolibah's equity cost of capital is 18% (APR. what price would you expect Coolibah's stock to sell for at the end of three years? S28.87 C) 534.64 D) S33.20 B) $31.76 13; Jumbuck Exploration has a current stock price of $3.00 and is expected to sell for $3.15 in one years 13) time, immediately after it pays a dividend of $0.28. Which of the following is closest to Jumbuck Exploration's equity cost of capital? A)860% B) 17.91% 14.33% D) 7.1 7% 14: Kirkevue Industries pays out all its earnings as dividends and has a share price of $27. In order to 14) expand, Kirkevue announces it will cut its dividend payments from $2.15 to $1.75 per share and reinvest the retained funds. What is the growth rate that should be achieved on the reinvested funds to keep the equity cost of capital unchanged? A) 0.14% B)0.15% c) 1.48% D) 0. I 7% 15 You expect KT industries (KTI) will have earnings per share of $4 this year and expect that they will pay out S1.75 of these earnings to shareholders in the form of a dividend. KTI's return on new investments is 13% and their equity cost of capital is 10%-The value of a share of KTI's stock today is closest to A) $39.07 C) S78.14 D s65.12 16) Valence Electronics has 213 million shares outstanding. It expects carnings at the end of the year of 16) S800 million. Valence pays out 40% of its earnings in total-,15% paid out as dividends and 25% used to repurchase shares. If Valence's earnings are expected to grow by 7% per year, these payout rates do not change, and Valence's equity cost of capital is 99, what is Valence's share price? A) 311.27 B) $75.12 C) $60.10 D) $22.54 17) An orcharder spends $110,000 to plant pomegranate bushes. It will take four years for the bushes 17) to provide a usable crop. He estimates that every year for 20 years after that he will receive a crop worth si0.500 per year. If the discount rate is 9%, what is the net present value (MPV) of this A) -$42,098 B) 58420 C) S12,629 D) -$21,049 18) A security company offers to provide CCTV coverage for a parking garage for ten years for an 18) initial payment of $50,000 and additional payments of $30,000 per year. What is the equivalent annual annuity of this deal, given a cost of capital of 5%? C-$36475 A)-$29,180 B) -$21,885 D) -$25,333 Div, Div r (+r) PN = DIV N +1 Div Discounted dividend model (DDM): with Constant Growth DDM model PV(Future Total Dividends and Net Repurchases) Shares Outstandingo Total Payout model Earnings Growth Rate Retention Rate X Return on New Investment (ROE) Where Retention Rate-1-Payout rate If earnings growth rate is the same as the dividend growth rate, then G Retention Rate X Return on New Investment Project Evaluation NPV -PV(Benefits)- PV(Costs) IRR is the discount rate that sets NPV = 0 Profitability index-Value Created/Resource Consumed - NPV/Resource consumed Capital Budgeting Incremental Earnings = (Incremental Revenues-Incremental Cost-Depreciation) X (1-Tax Rate) Free Cash Flow (Revenues - Costs - Depreciation) X (1 - Tax Rate) + Depreciation CapEx - Change in NWC After-Tax Cash Flow from Asset Sale Sale Price-(Tax Rate X Capital Gain) Capital Gain = Sale Price-Book Value Book Value Purchase Price - Accumulated Depreciation Formulas BUS241 Time Value of Money and Interest Rates Future value in n periods of one cash flow C received today: FV = C * (1 + r)" Present value today of one cash flow C received in n periods Rate of return in order to go from PV to FV in period n: Present value of perpetuity PV FV i PV PV(C in perpetuity) C/hr Present value of growing perpetuity: PV(C in perpetuity grows at rate g) Present value of regular annuity: Future value of a regular annuity: PMT in a regular annuity: C/(r-g) rl (1+r) PV Present Value of a growing annuity Equivalent n-period discount rate (I+r)-1 where r is the discou Converting an APR to EAR: nt rate for one period 1+EAR:(1+Amey where m is the number of compounding periods per year Bonds Coupon payment (CPN)Coupon Rate x Face Value Zero Coupon Bonds: Number of Coupon Payments per Year 1+YTM=/ Face Value1 Price YTM for a zero coupon bond: Coupon Bonds: Face Value Stocks r, = Div, +B-Po Shares Ous tan dinge, xDividend Pao and P,21+ Holding Period Return Earnings,xDividend Payout Rate, Dividend: Shares Outs tan ding - EPS,xDividend Payout Rate, Formula Sheet Final