Question 1

Suppose a company uses only debt and internal equity to finance its capital budget and uses CAPM to compute its cost of equity. Company estimates that its WACC is 15%. Company Debt to Equity 2.33. Before tax cost of debt is 8% and tax rate is 30%. Risk free rate is r_RF = 7% and market risk premium (r_m r_RF) = 12%.

What is the beta of the company?

Question 2

Firm purchased plant Rs. 250,000; foundation cost paid 15,000 and installation charges Rs. 38,000. The projected sales of the company for the first year is 400,000 and this sales will grow by 5% per annum for next five years. However, Companys EBIT would be near 15% of sales and Interest expense 5% of sales. Corporate tax rate is at 30% and Cost of capital 15%.

Calculate the Discounted Payback Period.

Question 3

A share of stock with a beta of 1.20 now sells for 55. Investors expect the stock to pay a year-end dividend of 2.90. The T-bill rate is 7 percent, and the market risk premium is 8 percent. If the stock is perceived to be fairly priced today,

What must be investors expectations of the price of the stock at the end of the year?

Question 4

The total book value of the firms equity is 15 million; book value per share is 35. The stock sells for a price of 45 per share, and the cost of equity is 16 percent. The firms bonds have a par value of 8 million and sell at a price of 112 percent of par. The yield to maturity on the bonds is 8 percent, and the firms tax rate is 30 percent.

Find the WACC of Pakistan State Oil Company?

Question 5

Firm purchased plant Rs. 250,000; foundation cost paid 15,000 and installation charges Rs. 38,000. The projected sales of the company for the first year is 400,000 and this sales will grow by 5% per annum for next five years. However, Companys EBIT would be near 15% of sales and Interest expense 5% of sales. Corporate tax rate is at 30% and Cost of capital 15%.

Calculate Internal Rate of Return (IRR).

Question 6

Market rate of return is 15%, beta is 1.20 and required rate of return is 16%.

What is risk free rate of return?

Question 7

Firm purchased plant Rs. 250,000; foundation cost paid 15,000 and installation charges Rs. 38,000. The projected sales of the company for the first year is 400,000 and this sales will grow by 5% per annum for next five years. However, Companys EBIT would be near 15% of sales and Interest expense 5% of sales. Corporate tax rate is at 30% and Cost of capital 15%.

Calculate Modified Internal Rate of Return (MIRR).

Question 8

Scenario Probability Stocks

Recession 0.50 -8 %

Normal Economy 0.30 12%

Boom 0.20 20%

Calculate the expected return and standard deviation? (Answer should be in two decimal ONLY)

Expected Return

Standard Deviation

Question 9

Firm purchased plant Rs. 250,000; foundation cost paid 15,000 and installation charges Rs. 38,000. The projected sales of the company for the first year is 400,000 and this sales will grow by 5% per annum for next five years. However, Companys EBIT would be near 15% of sales and Interest expense 5% of sales. Corporate tax rate is at 30% and Cost of capital 15%.

Calculate Profitability Index (PI).

Question 10

Firm purchased plant Rs. 250,000; foundation cost paid 15,000 and installation charges Rs. 38,000. The projected sales of the company for the first year is 400,000 and this sales will grow by 5% per annum for next five years. However, Companys EBIT would be near 15% of sales and Interest expense 5% of sales. Corporate tax rate is at 30% and Cost of capital 15%.

Calculate Net Present Value (NPV).