Time value of money, cost of capital and Capital budgeting decision The management of Co is evaluating an investment in a new coffee masing machine The company has taken care to estimate the future cash flow for the coffee beans that the machine will produce and finally they manage to present the cash flow for the in the Estimated cash flowinno Required: Calce the packend of the planned to id Discuss the face of the investment projects arts Searnitions and motions that you made in your calculations Q2: The direction of Deltaco are considering a planned and testing mediately. The following information relate to the investment project ProCash flow 11.585 12.682 The views of the directors of Delta Co are that all investment of operations. Both net present and payback must be used with a maximum payback period of The cost of capital of beita cois12% Required al Cathof het Catheach of the The director of Chi n apropatoen af food a tch worfears. Both tree and back must bewed with a m period of the Ther ocea eis 1 Required: al Calculate the present Value of the planned investment project marks) Calculate the payback period of the planned investment project. 2 ) d iscuss the financial acceptability of the investment project. (2 marks Star any o ns and to that you made in your calculation marks Financial statement analysis Q: Dan in publicly traded company involved in sing personal computer PC device with software comer e O me r MP3 players and electronics built by other manufacturers. The com f ort organisation and innovative supply chain management with the publication of the financi ments for the year to 30 2017, the made and the wing two The company was going well and the y management One of the key Successor of our management is the adoption of wongamana The CEO expressed a desire to make expansion le short but to growth incre a sing market share an in the leading technology firm company through and stone plante s de como information for an in Year ending Nov a rties 2015 2016 2017 industry NPMINI ROAN Current Ratio Total ability / Total assets ratione 079 085101 03 18.13 18. 7 192128 000 006 Share Duysentary Held Days A/R Outstanding DAP Ottanding Prepare report for the Dar's board of directors in your report you should Cicly Dunnes pr achch c) Mars will be warded fordel femal e and present of the report Q2: Squair Co is an international airline which flies to more than 226 international destinations in 118 countries. Squair Co experienced rapid initial growth but in recent years the company has been facing a range of difficulties and challenges. The following are the key financial data and information for recent years ending 31 December Squair Co 2016 2015 Industry average 8% 12% 0.74 Net profit margins Total Asset Turnover (TAT) Return on Assets (ROA) Debt ratio 0.78 6.2% 54% 8.7% 10% 0.77 7.6% 48% 80% The following information is relevant: (i) The numbers of flights operated by Squair Co has remained the same in 2015 and 2016. It is expected that there will be an increase in cost of license charged by three major airports at the beginning of 2017. The licenses with five more major airports are due to expire in Dec 2017 Required: Prepare a report for the top management. In your report you should (a) Critically analyze and discuss the recent financial performance and financial conditions of Squair Co and highlight areas of concern for the future (9 marks) (b) State clearly any limitations and assumptions that you made in your calculations. (3marks) (c) Marks will be awarded for Professional format, structure and presentation of the report. (2 marks) Q3: You have been appointed as a financial analyst by Ramada Co. Ramada Co has identified Applied Co as a possible acquisition within the same industry. Your role is to critically assess the financial performance and conditions of Applied Co and highlights area of concerns to the members of Ramada's board of directors. The following are the key financial data and information for recent years ending 31 December Applied Co 2017 Industry average KPI Gross profit margins % Operating profit margins % Days of account receivable outstanding (days) Current ratio Quick ratio Debt/ equity ratio % 6145 37.6 28 40 41 1:1 1.6:1 0.57:1 1.4:1 220 240 Required: Prepare a report for the Ramada's board of directors. In your report you should (a) Critically analyze and discuss the recent financial performance and financial conditions of Squair Co and highlight areas of concern for the future (4 marks) (b) State clearly any limitations and assumptions that you made in your calculations. (2marks) (c) Marks will be awarded for Professional format, structure and presentation of the report. (2 marks) Q3: Given below are abstract of the financial information relates to RAJ CO, which has considering raising $ 50 million of new debt finance to support existing business operations. Assume that it is now 31 Dec 2015. RAJ Co has been experiencing trading difficulties due to a continuing depressed level of economic activity: Financial information for recent years ending 31 December RAJ Co. 2015 2014 2013 25.3 26.6 5.5 19.8 29.3 48 24.5 213 Profit before interest and tax Interest charges profit before tax Taxation expense Net profit Debt ratio 73 17.2 47% Dividend and share price information of RAJ CO RAJ Co. Total cash diy paid Share price at end of year Average data on industry -Debt ratio 49% Interest coverage 10 times Required: Prepare a report for the top management. In your report you should (a) Critically analyze and discuss the recent financial performance and financial conditions of RAJ Co and comment on the proposal to raise $50 million of new debt finance (6 marks) (b) State clearly any limitations and assumptions that you made in your calculations. (2 marks) (c) Marks will be awarded for Professional format, structure and presentation of the report. (2 marks) CAPM, Stock & Bond Valuation Q1: HF is small company listed in a junior stock market. Its shares have a beta value of 10 the expected market return is 10% and the risk-free return is 4.5% HF company's videndidected to grow at 20 percent for the next five years initial growth period (GP) Aer that, the growth is expected to be 4 percent forever. The dividend just paid was $2 per share. Required: (a) Explain how to measure the unsystematic risk and why is important in investment decision process (3 marks) (b) Estimate the expected rate of returns using CAPModel marks) (c) Define and graph the security market line using the data in marks) (d) Estimate the value of HF's shares. (4 marks) lel State clearly any limitations and assumptions that you made in your callations (2 marks Q2: You have just graduated from MBA program with finance ma n y wer graduation you have been hired as a financial analyst in a highly prestigious listed company name Cornejo. Your first assignment is to estimate the cost of equity capital and stock price of the company. Your assistant gathered the following information for you The dividend per share (DPS) record of the company over the last years is as follows: Dividend per Share DPS 780 t- s 10 85 112 Risk free rate is 3.5 percent Market is premium is percent Comeje Co has an estimated beta of 110 The company's dividend growth rate is expected to remain content for the foreseeable future Required: ( Estimate the company's cost of equity capital using CAPM marks) e) Draw and briefly define the security market line SML) (2marks) (h) Extrapolate a past growth rate. (2 marks) (1) Estimate the current price of the company's shares (3 marks) 0) State clearly any limitations and assumptions that you made in your calculations. (2 marks) Q3: Ram's stock is currently selling for $160.00 per share and the firm's dividends are expected to grow at 5 percent indefinitely. In addition, Ram's stock most recent dividend was $5.50. The expected risk free rate of return is 3 percent, the expected market return is 8 percent, and Ram's stock has a beta of 1.20. Required: (a) Estimate the expected return based on the dividend valuation model. (3 marks) (b) Estimate the required rate of return using CAPM and Draw the security market line (SML). (3marks) (c) Would Ram's stock be a good investment at this time? Explain. (3 marks) (d) State clearly any limitations and assumptions that you made in your calculations. (2 marks) Q4: The Slinger Metal Fabricating Company entered into a loan agreement with its bank to finance the firm's working capital. The loan called for a floating rate that was 30 basis points over an index based on LIBOR. In addition, the loan adjusted weekly based on the closing value of the index for the previous week within the bounds of a maximum annual rate of 2.55% and a minimum of 1.95%. Week(t) LIBOR (t) % LIBOR (t-1)+Spread Loan rate 2.3 2.25 1.66 1.58 1.35 1.63 1.88 1.78 1.93 1.66 Required: (a) Calculate the LIBOR (t-1) +Spread and Loan rate for the weeks 2 through 10.(3marks) (b) is the ceiling rate or floor rate violated during the loan period? (2 marks) (c) To finance its long term investment, the Slinger Metal Fabricating Company has also issued a 12% bond that is to mature in nine years. The bond had a $1,000 par value, and interest is due to be paid annually. If the yield to maturity 10%, estimate the price of this bond (3 marks) CAPM, Stock & Bond Valuation Q1: HF is small company listed in a junior stock market. Its shares have a beta value of 10 the expected market return is 10% and the risk-free return is 4.5% HF company's videndidected to grow at 20 percent for the next five years initial growth period (GP) Aer that, the growth is expected to be 4 percent forever. The dividend just paid was $2 per share. Required: (a) Explain how to measure the unsystematic risk and why is important in investment decision process (3 marks) (b) Estimate the expected rate of returns using CAPModel marks) (c) Define and graph the security market line using the data in marks) (d) Estimate the value of HF's shares. (4 marks) lel State clearly any limitations and assumptions that you made in your callations (2 marks Q2: You have just graduated from MBA program with finance ma n y wer graduation you have been hired as a financial analyst in a highly prestigious listed company name Cornejo. Your first assignment is to estimate the cost of equity capital and stock price of the company. Your assistant gathered the following information for you The dividend per share (DPS) record of the company over the last years is as follows: Dividend per Share DPS 780 t- s 10 85 112 Risk free rate is 3.5 percent Market is premium is percent Comeje Co has an estimated beta of 110 The company's dividend growth rate is expected to remain content for the foreseeable future Required: ( Estimate the company's cost of equity capital using CAPM marks) e) Draw and briefly define the security market line SML) (2marks) (h) Extrapolate a past growth rate. (2 marks) (1) Estimate the current price of the company's shares (3 marks) 0) State clearly any limitations and assumptions that you made in your calculations. (2 marks)