State and prove the Gordon growth model

Suppose the market for lending is risk-free and perfectly efficient. Use an arbitrage argument to show there can only be one market interest rate

What are the two components of total return for a bond?

How do bond dealers make money?

How much would a pension fund pay for the Calgary parking authority business that earns a perpetual 40mm that grows with inflation? Ignore taxes and use 5% discount rate

Describe the relationship between projected growth and ROE.

Why is there a trade-off between current dividends and future dividend growth? Use one or more formulas in your answer.

What is the Dupont decomposition of ROE? Why do analysts look at this?

Suppose a company has organic growth of 10% that doesnt require investment. Current dividend is $4 and discount rate is 15%. If the share price is $200, what is the NPV of the managers ability to grow through acquisition?

Suppose a company has next year earnings of 100k, ROE 10%, and discount rate of 20%. What is the optimal payout ratio? What is the value destruction if the managers payout 50% of earnings?

If the 5-year return is 40%, what is the annual compound return?

What are some legitimate drivers of a low PE-multiple? Why?

What are some legitimate drivers of a high PE-multiple? Why?

State the NPV rule. What are the properties that make this rule theoretically sound?

What is the payback period rule? What are advantages, critiques?

What is IRR? What is the IRR rule?

Make up an example where IRR gives the wrong choice between mutually exclusive projects.

Define, give an example, and explain the appropriate treatment in decision making

Sunk cost

Opportunity cost

Side effects such as synergy, cannibalization

Allocated costs

What is the exact relationship between nominal growth, inflation and real growth?

Calculate the operating cash flow using 2 of the 3 methods (top-down, bottom-up, tax shield)

Sales 100, Cash costs 30, depreciation 10, tax rate 20%.

Suppose a 25mm new venture has a 50% chance of success or failure. Success is 10mm per year perpetual earnings and failure is 8mm per year perpetual losses. The discount rate is 10%. What is the NPV for each scenario? What is the simple expected NPV? Assuming the venture is abandoned after one year if it fails, what is the initial expected NPV with this plan? Is it rational to make this investment?