i want to know the answer of the exam paper as quick as possible, please writhe down the step of each calculation.

OFFICE\tUSE\tONLY Semester\tTwo\t2014 Examination\tPeriod Faculty\tof\tBusiness\tand\tEconomics EXAM\tCODES: BFB2631 TITLE\tOF\tPAPER: FINANCIAL\tMANAGEMENT\t-\tPAPER\t1 EXAM\tDURATION: 3\thours\twriting\ttime READING\tTIME: 10\tminutes THIS\tPAPER\tIS\tFOR\tSTUDENTS\tSTUDYING\tAT:\t(tick\twhere\tapplicable) Berwick Caulfield Parkville Clayton Gippsland Other\t(specify) Malaysia Peninsula OffCampus\tLearning Enhancement\tStudies Open\tLearning Sth\tAfrica During an exam, you must not have in your possession, a book, notes, paper, electronic device/s, calculator,\tpencil\tcase,\tmobile\tphone\tor\tother\tmaterial/item\twhich\thas\tnot\tbeen\tauthorised\tfor\tthe\texam or specifically permitted as noted below. Any material or item on your desk, chair or person will be deemed\tto\tbe\tin\tyour\tpossession.\tYou\tare\treminded\tthat\tpossession\tof\tunauthorised\tmaterials,\tor\tattempting to cheat or cheating in an exam is a discipline offence under Part 7 of the Monash University (Council) Regulations. No\texam\tpaper\tor\tother\texam\tmaterials\tare\tto\tbe\tremoved\tfrom\tthe\troom. AUTHORISED\tMATERIALS OPEN\tBOOK CALCULATORS YES NO YES NO (If\tYES,\tonly\tcalculators\twith\tan\t'approved\tfor\tuse'\tFaculty\tlabel\tare\tpermitted) SPECIFICALLY\tPERMITTED\tITEMS YES NO if\tyes,\titems\tpermitted\tare: This\tpaper\tconsists\tof\teight\t(8)\tquestions\tprinted\ton\ta\ttotal\tof\tseventeen\t(17)\tpages. Students\tmust\tattempt\tto\tanswer\tALL\tquestions. Candidates\tmust\tcomplete\tthis\tsection\tif\trequired\tto\twrite\tanswers\twithin\tthis\tpaper STUDENT\tID: __\t__\t__\t__\t__\t__\t__\t__ DESK\tNUMBER: __\t__\t__\t__\t__ PLEASE\tCHECK\tTHE\tPAPER\tBEFORE\tCOMMENCING.\tTHIS\tEXAMINATION\tPAPER\tMUST\tBE INSERTED\tINTO\tTHE\tANSWER\tBOOK\tAT\tTHE\tCOMPLETION\tOF\tTHE\tPAPER. BFB2631\tDr\tAbey\tGunasekarage Page\t1\tof\t17 OFFICE\tUSE\tONLY BFB2631\tFINANCIAL\tMANAGEMENT Question\t1:\tFinancial\tMathematics\tand\tValuation\tof\tSecurities Each\tquestion\tcarries\tan\tequal\tweighting\tof\ttwo\t(2)\tmarks. Write\tthe\tcorrect\tanswer\tfor\teach\tquestion\ton\tthe\tanswer\tbook. Question\t1.1 What\tis\tthe\tpresent\tvalue\tof\ta\tfourperiod\tannuity\tof\t$200\tper\tyear\tthat\tbegins\ttwo\tyears from\ttoday,\tif\tthe\tdiscount\trate\tis\t9%? (A) (B) (C) (D) (E) $297.22 $323.86 $388.97 $647.94 $594.44 Question\t1.2 Given\ta\tset\tfuture\tvalue,\twhich\tof\tthe\tfollowing\tcontributes\tto\ta\tlower\tpresent\tvalue? (A) (B) (C) (D) (E) Higher\tdiscount\trate Fewer\ttime\tperiods Less\tfrequent\tdiscounting Discount\tfactor Lower\tdiscount\trate Question\t1.3 Synthia\tis\twilling\tto\tinvest\t$8,150\ttoday\tin\torder\tto\taccumulate\t$15,000\tat\tthe\tend\tof\tfive years in order to fulfil her goal of purchasing a small sailboat. What rate of return will Synthia\thave\tto\tearn\ton\ther\tinvestment\tin\torder\tto\trealize\tthis\tgoal? (A) (B) (C) (D) (E) 6.48% 8.56% 10.88% 12.98% 15.20% Question\t1.4 Nicky Chen has just taken out a $100,000 mortgage at an interest rate of 8%. If the mortgage\tcalls\tfor\t20\tequal\tannual\tpayments,\twhat\tis\tthe\toutstanding\tbalance\ton\tthis\tloan (to\tthe\tnearest\tdollar)\tat\tthe\tend\tof\tyear\t2? (A) (B) (C) (D) (E) $89,000 $91,995 $95,455 $97,865 $90,125 BFB2631\tDr\tAbey\tGunasekarage 2\tof\t17 OFFICE\tUSE\tONLY BFB2631\tFINANCIAL\tMANAGEMENT Question\t1.5 Which\tof\tthe\tfollowing\tis\ttrue\tabout\tannuities? (A) An\tannuity\tdue\tis\tan\tequal\tamount\tof\tmoney\tpaid\tor\treceived\tat\tthe\tbeginning of\teach\tperiod. (B) An\tannuity\tdue\tis\tan\tequal\tamount\tof\tmoney\tpaid\tor\treceived\tat\tthe\tbeginning of\teach\tperiod,\tthat\tincreases\tby\tan\tequal\tamount\tin\teach\tperiod. (C) An\tordinary\tannuity\tis\tan\tequal\tamount\tof\tmoney\tpaid\tor\treceived\tat\tthe\tend\tof each\tperiod\tthat\tincreases\tby\tan\tequal\tamount\teach\tperiod. (D) An ordinary annuity is an equal amount of money paid or received at the beginning\tof\teach\tperiod. (E) An\tordinary\tannuity\tis\tan\tannuity\tfor\twhich\tthe\tfirst\tcash\tflow\toccurs\tbeyond the\tend\tof\tthe\tfirst\tperiod. Question\t1.6 If\ttwo\tbonds\tare\tidentical\tin\trisk,\tmaturity\tdate,\tand\tface\tvalue\tbut\tone\thas\ta\tcoupon\trate\tof 10% and the other\ta\tcoupon rate of 8%, which of the\tfollowing is most correct assuming that\tboth\tbonds\thave\ta\tmarket\tyield\tof\t9%? (A) The\t10%\tcoupon\tbond\twill\tbe\tselling\tat\ta\tpremium\tand\tthe\t8%\tcoupon\tbond will\tbe\tselling\tat\ta\tdiscount. (B) The\t10%\tcoupon\tbond\twill\tbe\tselling\tat\ta\tdiscount\tand\tthe\t8%\tcoupon\twill\tbe selling\tat\ta\tpremium. (C) Both\tbonds\twould\tbe\tselling\tat\tface\tvalue\tat\tmaturity. (D) Both\t\"A\"\tand\t\"C\"\tare\tcorrect. (E) Both\t\"B\"\tand\t\"C\"\tare\tcorrect. Question\t1.7 What is the Effective Annual Yield of a $1000 par value bond with 14 years to maturity, which\tpays\tsemiannual\tcoupons\tat\ta\trate\tof\t8%\tper\tannum\tand\thas\ta\tcurrent\tmarket\tprice of\t$932.58? (A) 6.50\t% (B) 7.74\t% (C) 8.85\t% (D) 9.05\t% (E) 9.33% Question\t1.8 Omega Ltd is a new company with no dividends anticipated for the next three years. It expects\tto\tpay\ta\tdividend\tof\t$2.00\tin\tyear\t4\twhich\tis\texpected\tto\tgrow\tat\ta\tconstant\trate\tof 5%\tper\tannum\tforever.\tIf\tthe\trequired\trate\tof\treturn\ton\tOmega\tis\t10%,\twhat\tis\tthe\tvalue today\tof\tOmega\tShares? (A) $20.00 (B) $28.69 (C) $30.05 (D) $40.00 (E) $42.00 BFB2631\tDr\tAbey\tGunasekarage 3\tof\t17 OFFICE\tUSE\tONLY BFB2631\tFINANCIAL\tMANAGEMENT Question\t1.9 What rate of return is expected from a stock that sells for $28 per share today, pays an annual\tdividend\tof\t$1.20,\tand\tis\texpected\tto\tsell\tfor\t$31\tper\tshare\tin\tone\tyear? (A) (B) (C) (D) (E) 15% 16% 17% 19% 20% Question\t1.10 Which of the following statements is correct about a stock currently selling for $50 per share that has an expected return of 16% per annum and a 10% expected annual capital appreciation? (A) (B) (C) (D) (E) Its\texpected\tdividend\texceeds\tthe\tactual\tdividend. Its\texpected\treturn\twill\texceed\tthe\tactual\treturn. It\tis\texpected\tto\tpay\t$3\tin\tannual\tdividends. It\tis\texpected\tto\tpay\t$8\tin\tannual\tdividends. More\tinformation\tis\trequired\tbefore\tthe\tdividend\tcan\tbe\tcalculated. BFB2631\tDr\tAbey\tGunasekarage [TOTAL:\t2\t\t10\t=\t20\tMARKS] 4\tof\t17 OFFICE\tUSE\tONLY BFB2631\tFINANCIAL\tMANAGEMENT Question\t2:\tCapital\tBudgeting Hankook Industries is evaluating two mutually exclusive projects with unequal lives. The relevant\tcash\tflows\tassociated\twith\teach\tproject\tare\tgiven\tin\tthe\tfollowing\ttable.\tThe\tfirm's cost\tof\tcapital\tis\t15%. Year Project\tA Project\tB 0 $80,000 $140,000 1 $30,000 $60,000 2 $36,000 $40,000 3 $40,000 $30,000 4 $46,000 $30,000 5 $50,000 $40,000 6 $50,000 7 $60,000 8 $70,000 Required: (a) What\tare\tmutually\texclusive\tprojects? (1\tmark) (b) Calculate\tthe\tNPVs\tof\tprojects\tA\tand\tB. (4\tmarks) (c) Can\tHankook\tIndustries\tdecide\twhich\tproject\tto\tselect\tby\tjust\tcomparing\tthe\tNPV\tof the\ttwo\talternative\tprojects?\tJustify\tyour\tanswer. (1\tmark) (d) Which\tproject\tshould\tHankook\tIndustries\tselect\tbased\ton\tthe\tequivalent\tannual\tcash flow\t(EAC)\tmethod? (4\tmarks) [TOTAL:\t10\tMARKS] BFB2631\tDr\tAbey\tGunasekarage 5\tof\t17 OFFICE\tUSE\tONLY BFB2631\tFINANCIAL\tMANAGEMENT Question\t3: Working\tCapital\tManagement The following information has been extracted from the financial statements of Lexica Ltd for\tthe\tfinancial\tyear\tended\t30\tJune\t2014: Extracts\tfrom\tbalance\tsheet/statement\tof\tfinancial\tposition: Current\tAssets Cash\t&\tmarketable\tsecurities Current\tLiabilities $570,000 Accounts\tPayable $2,450,000 Accounts\tReceivable $2,340,000 Accrued\texpenses $250,000 Inventories $1,870,000 Total\tcurrent\tassets $4,780,000 Total\tCurrent\tLiabilities $2,700,000 Extracts\tfrom\tthe\tincome\tstatement: Net\tSales $25,900,000 Cost\tof\tgoods\tsold $15,540,000 Required: (a) Briefly explain what you understand by the terms 'operating cycle' and 'cash conversion\tcycle'. (3\tmarks) (b) Calculate\tthe\toperating\tcycle\tfor\tLexica\tLtd. (2\tmarks) (c) The industry average of operating cycle is 68 days. What can you say about Lexica Ltd's\taccounts\treceivable\tand\tinventory\tmanagement? (1\tmark) (d) In\tan\tattempt\tto\timprove\tits\toperating\tcycle,\tLexica\tLtd\tis\tconsidering\toffering\ta\tcredit term\tof\t2/10,\tnet\t40\tto\tits\tcustomers: (i) What\tdoes\tthis\tcredit\tterm\tmean? (ii) What is the effective annual cost to a customer who does not take the cash discount\toffered\tby\tLexica\tLtd? (2\tmarks) BFB2631\tDr\tAbey\tGunasekarage (2\tmarks) [TOTAL:\t10\tMARKS] 6\tof\t17 OFFICE\tUSE\tONLY BFB2631\tFINANCIAL\tMANAGEMENT Question\t4:\tRisk\t&\tReturn,\tPortfolio\tTheory\tand\tCAPM The\treturns\tfor\tshare\tX\tand\tshare\tY\tfor\tthe\tyears\t2009\tto\t2013\tare\tprovided\tin\tthe\ttable below. Year Share\tX\t(%) Share\tY\t(%) 2009 12 15 2010 16 10 2011 8 3 2012 9 5 2013 20 12 Note: Use the statistical functions of your financial calculator to answer the following questions. Required: (a) Calculate\tthe\texpected\treturns\tfor\tshare\tX\tand\tshare\tY. (2\tmarks) (b) Calculate\tthe\tstandard\tdeviations\tfor\tshare\tX\tand\tshare\tY. (2\tmarks) (c) If\tyou\tinvest\t$40,000\tin\tshare\tX\tand\t$60,000\tin\tshare\tY,\tcalculate\tthe\texpected\treturn and\tthe\tstandard\tdeviation\tof\tthis\tportfolio. (2\tmarks) (d) Assume that the risk free rate (Rf) is 5% and the expected return on the market portfolio\tE(RM)\tis\t12%.\tThe\tstandard\tdeviation\tof\tthe\tmarket\tportfolio\t( M )\tis\t10%. Shares\tX\tand\tY\thave\tthe\tfollowing\tcorrelations\twith\tthe\tmarket\tportfolio: X ,M 0.87 Y ,M 0.42 (i) (ii) (e) Calculate\tthe\tbeta\tof\tyour\tportfolio. Using\tCAPM\tequation,\tcalculate\tthe\trequired\treturn\ton\tyour\tportfolio. (1\tmark) (2\tmarks) Compare\tyour\tanswer\tin\tPart\t(c)\twith\tthe\tanswer\tin\tPart\t(d)\tand\tdecide\twhether\tit\tis worth\tinvesting\tin\tthis\tportfolio. (1\tmark) [TOTAL:\t10\tMARKS] BFB2631\tDr\tAbey\tGunasekarage 7\tof\t17 OFFICE\tUSE\tONLY BFB2631\tFINANCIAL\tMANAGEMENT Question\t5:\tCost\tof\tCapital You are analysing the cost of capital for a company which has issued the following securities\tto\tfinance\tits\tassets: 150,000 bonds with a face value of $1,000 and a coupon rate of 9%. These bonds are currently\tpriced\tat\t$1,440\tper\tbond\tand\tthey\tmature\tin\t20\tyears.\tThe\tcoupons\tare\tpaid semiannually. 2,000,000 preference shares with an annual dividend of $1.20 per share. These preference\tshares\tare\tcurrently\tselling\tat\t$15\tper\tshare. 10,000,000 ordinary shares outstanding. These ordinary shares are expected to pay a dividend of $2.50 per share one year from today (i.e. D1=$2.50) which is expected to grow\tat\ta\tconstant\trate\tof\t6%\tper\tyear\tin\tthe\tfuture.\tThese\tshares\tare\tcurrently\ttrading at\ta\tprice\tof\t$25\tper\tshare. The\tcompany's\tcorporate\ttax\trate\tis\t30%. Required: (a) Determine\tthe\tcapital\tstructure\tweights\tfor\tthe\tcompany. (2\tmarks) (b) Determine\tthe\tcost\tof\teach\tcomponent\tof\tcapital\tstructure. (4\tmarks) (c) Calculate\tthe\tweighted\taverage\tcost\tof\tcapital. (2\tmarks) (d) Given the following investment alternatives, which projects should the company accept if\tthe\tcompany's\toverall\tWeighted\tAverage Cost\tof\tCapital\t(WACC)\tis used\tas the\thurdle\trate? Projects IRR\t(%) A B C 9.50 11.50 8.67 (2\tmarks) [TOTAL:\t10\tMARKS] BFB2631\tDr\tAbey\tGunasekarage 8\tof\t17 OFFICE\tUSE\tONLY BFB2631\tFINANCIAL\tMANAGEMENT Question\t6: Capital\tStructure Boston Ltd is an all equity firm. It expects to generate earnings before interest and tax (EBIT) of $5,000,000 per year in perpetuity. The finance manager of the company has determined\tthat\tBoston's\tunlevered\tcost\tof\tequity\tis\t22%.\tThe\tcompany\tfaces\ta\tcorporate tax\trate\tof\t30%. The\tcompany's\tnewly\tappointed\tCEO\tplans\tto\trestructure\tits\tcapital\tby\tissuing\t$6\tmillion\tin debt\tat\ta\tpretax\tcost\tof\tdebt\tof\t12%\tand\tusing\tthe\tproceeds\tto\tbuy\tback\tshares. Required: (a) What\tis\tthe\tvalue\tof\tBoston\tLtd\tprior\tto\tthe\tcapital\trestructuring? (1\tmark) (b) Calculate\tthe\tvalue\tof\tBoston\tLtd\tafter\tthe\tcapital\trestructuring\texercise. (1\tmark) (c) Determine\tthe\tvalue\tof\tBoston\tLtd's\tequity\tafter\tthe\tcapital\trestructuring. (2\tmarks) (d) Calculate\tthe\tcost\tof\tequity\tafter\tthe\tcapital\trestructuring. (2\tmarks) (e) Calculate\tthe\tWeighted\tAverage\tCost\tof\tcapital\tafter\tthe\tcapital\trestructuring. (2\tmarks) (f) Briefly\texplain\tany\tother\tfactors\tthat\tcould\taffect\tthe\tvalue\tof\tBoston\tafter\tthis\tcapital structure\tchange. (2\tmarks) [TOTAL:\t10\tMARKS] BFB2631\tDr\tAbey\tGunasekarage 9\tof\t17 OFFICE\tUSE\tONLY BFB2631\tFINANCIAL\tMANAGEMENT Question\t7: Market\tEfficiency\tand\tDividend\tPolicy (a) Answer the following questions demonstrating your understanding with respect\tto\tmarket\tefficiency. (i) For\ta\tfinancial\tmarket\tto\tbe\tefficient,\twhat\tare\tthe\ttwo\tconditions\tthat\tshould\tbe satisfied\twhen\tstock\tprices\trespond\tto\tnew\tinformation? (1\tmark) (ii) At\t8.00\tpm\ton\t21\tJuly\t2014,\tBassel\tEnterprises\tannounced\tthat\tits\tannual\tprofit for\tthe\tpast\tyear\twas\t$600\tmillion.\tThe\tconsensus\tforecast\tof\tfinancial\tanalysts for\tBassel's\tprofit\tprior\tto\tthis\tannouncement\twas\t$600\tmillion.\tAssume\tthat\tno other pricerelevant information about Bassel Enterprises was released to the market\ton\t21\tJuly\t2014. If\tthe\tmarket\tis\tefficient,\twould\tBassel's\tshare\tprice\trise,\tfall\tor\tremain\tthe\tsame when\tthe\tmarket\treopens\tthe\tnext\tmorning?\tJustify\tyour\tanswer. (2\tmarks) (iii) Bassel's share price does not change immediately after the market opens next morning.\tInstead,\tthe\tshare\tprice\tchanges\ttwo\thours\tafter\tthe\tmarket\topens. (b) Is\tthis\tshare\tprice\tchange\tconsistent\twith\tan\tefficient\tmarket?\tWhy? (1\tmark) Answer the following questions demonstrating your understanding with respect\tto\tdividend\tpolicy. (i) Differentiate\tbetween\tregular\tdividends\tand\tshare\tbuybacks. (3\tmarks) (ii) Sessmess\tLtd,\tan\tAustralian\tlisted\tcompany,\tjust\tpaid\ta\tfully\tfranked\tdividend\tof $2.50. Courtney owns 250 shares in Sessmess Ltd and his personal tax rate is 40%. Sessmess Ltd has a corporate tax rate of 30%. Calculate the following to two\tdecimals: Courtney's\ttaxable\tdividend\tincome. (1\tmark) The\tamount\tof\ttax\tCourtney\twould\thave\tto\tpay\ton\tdividend\tincome. (2\tmarks) [TOTAL:\t10\tMARKS] BFB2631\tDr\tAbey\tGunasekarage 10\tof\t17 OFFICE\tUSE\tONLY BFB2631\tFINANCIAL\tMANAGEMENT Question\t8: Comprehensive\tProblem Alliance Pharmaceuticals is considering replacing its semiautomatic medicine packing equipment.\tThe\texisting\tequipment\twas\tpurchased\tfive\tyears\tago\tat\ta\tprice\tof\t$200,000\tand it\twas\tdepreciated\tbased\ton\tthe\tstraightline\tmethod\tassuming\ta\ttenyear\tlife.\tThe\texisting machine being semiautomatic is manned by two operators whose annual salary and benefits amount to $36,000 per operator. The existing machine could be sold today for a salvage\tvalue\tof\t$45,000. The replacement machine being considered is fully automatic and will not be manned by any operators. The replacement machine costs $500,000 and will be depreciated on a straightline\tbasis\tover\ta\tlife\tof\tfive\tyears.\tAlliance\tPharmaceuticals'\tmanagement\testimates that\tthey\tcan\tsell\tthe\tnew\tequipment\tfor\t$60,000\tat\tthe\tend\tof\tthe\tfive\tyears.\tThe\tnew\tfully automatic\tpacking\tequipment\tis\tmore\tefficient\tand\twould\treduce\texpenses\tby\t$50,000\tper annum and increase revenues by $180,000 per annum over the next five years. Since the new\tmachine\thas\ta\tfaster\toperating\tspeed,\tthere\twill\tbe\tan\tincrease\tin\tnet\tworking\tcapital of $40,000 at the beginning of the operation (i.e. in year 0) and then net working capital requirements will increase by 20% for each of the next four years. The accumulated net working\tcapital\twill\tbe\trecovered\tat\tthe\tend\tof\tthe\tfive\tyears. If the existing machine is not replaced then it would have to be overhauled at the end of year eight of its life at a cost of $70,000 to keep it in running condition for the next two years.\tIf\tspent,\tthis\toverhaul\tcost\tcould\tbe\tcharged\tto\tincome\tstatement\tas\ttax\tdeductible expenditure.\tAlliance\tPharmaceuticals'\tcurrent\tshare\tprice\tis\t$5.50\tand\tthey\thave\tjust\tpaid a\tdividend\tof\t$0.50\tper\tshare.\tThe\tdividends\tare\texpected\tto\tgrow\tat\ta\trate\tof\t10%\tper\tyear over the foreseeable future. Alliance Pharmaceuticals can borrow from the bank at 15% and\thas\ta\tdebt\tto\ttotal\tvalue\tof\t0.35.\tThe\tcorporate\ttax\trate\tis\t30%. Required: (a) Calculate\tthe\tinitial\tyear\tcash\tflow\tif\tthe\tfully\tautomatic\tmachine\tis\tpurchased. (2\tmarks) (b) Determine the Operating cash flows over the fiveyear life, if the new equipment is purchased. (12\tmarks) (c) Calculate\tthe\tweighted\taverage\tcost\tof\tcapital.\tWhat\thave\tyou\tassumed\tabout\tthe\trisk of\tthe\tproject\tand\tthe\trisk\tof\tthe\tcompany? (2\t+\t1\t=\t3\tmarks) (d) Calculate the NPV and IRR of the project and advise whether the company should replace\tthe\told\tsemiautomatic\tpacking\tequipment. (3\tmarks) [TOTAL:\t20\tMARKS] END\tOF\tEXAMINATION BFB2631\tDr\tAbey\tGunasekarage 11\tof\t17 OFFICE\tUSE\tONLY BFB2631\tFINANCIAL\tMANAGEMENT Formula Sheet Financial Mathematics FVn PV Valuation of Shares and Bonds PV(1 i) n FVn /(1 i) n Pps i m 1 FVn PV 1 m D1 R g 1 i m m n Fn 1 1 i n 1 i n D1 k ps P0 EAR C 1 i PB D0 1 g R g PV 1 Capital Budgeting FVn i m n n NPV m n FVn PV IRR PV e i n FVn ei n NPV t ARR = PV t CFt t 0 (1 k) PMT/i n CFt FVn PV FVn CF0 PMT 1 1 i (1 i) n 0 Average Annual Income Average Investment t PI = t 1 (1 k) PV CFt t 0 (1 irr) PMT (1 i ) n 1 i PMT 1 1 i (1 i ) n PMT (1 i ) n 1 i BFB2631\tDr\tAbey\tGunasekarage 1 i (1 i) 12\tof\t17 OFFICE\tUSE\tONLY BFB2631\tFINANCIAL\tMANAGEMENT Risk and Return CAPM HPR kt Ct Pt Pt 1 Pt 1 HPR = (1+k1) (1+k2) ... (1+kn) - 1 n E(R) R ipi i 1 n Ri i 1 E( R) n 2 n 2 Ri R pi R i 1 n ( Ri R ) 2 2 i 1 R k n 1 CV k n Rp wi Ri i 1 2 2 2 2 2 x 1 1 x 2 2 2x 1 x 2 1 2 r1,2 p N i, j (R i Ri ) (R j R j ) Pn n 1 N (R i R i ) (R j R j ) n 1 i, j n 1 Risk and Return CAPM Ri RF i (R m RF) Cov ( Ri , R M ) i 2 (RM ) Sharpe Measure = r rf Cost of Capital WACC xDebt k Debt,pretax (1 t ) xps k ps xdebt +xps +xos = 1 V=D+P+S Capital Structure - No Tax World Vcompany with debt = V Assets k os k assets V Debt V equity ( k Assets xos k os k Debt ) Capital Structure - Tax World VCompany with Debt = VAssets + D x t V Company k os k assets V Assets V Debt Vequity EBIT (1 t ) k Asset ( k Assets k Debt )(1 t ) Working Capital Management n p Operating cycle = DSO + DSI Cash conversion cycle =DSO + DSI - DPO wi i i 1 ij Ri , j Corr ( Ri , R j ) Ri EAR Rj Discount 1 Discount Pr ice 365 / Credit Period 1 EOQ BFB2631\tDr\tAbey\tGunasekarage 2 Re order Cost Sales Carrying Cost 13\tof\t17 OFFICE\tUSE\tONLY BFB2631\tFINANCIAL\tMANAGEMENT BFB2631\tDr\tAbey\tGunasekarage Page\t14\tof\t17 OFFICE\tUSE\tONLY BFB2631\tFINANCIAL\tMANAGEMENT BFB2631\tDr\tAbey\tGunasekarage Page\t15\tof\t17 OFFICE\tUSE\tONLY BFB2631\tFINANCIAL\tMANAGEMENT BFB2631\tDr\tAbey\tGunasekarage Page\t16\tof\t17 OFFICE\tUSE\tONLY BFB2631\tFINANCIAL\tMANAGEMENT BFB2631\tDr\tAbey\tGunasekarage Page\t17\tof\t17