0-2 online - Financial Management Question (3 Marks) CLO3 XYZ Inc. recently reported operating income of AED2.75 million, depreciation of AED1.20 million, and had a tax rate of 40%. The firm's expenditures on fixed assets and net operating working capital totaled AEDO.6 million. Al How much was its free cash flow (FCF). in millions? 12] B] Analyze the importance of the FCF as a financial indicator for the company. [1] Heading 4 BIE Consider the following the graph which summarizes the expected probability distributions of the rate of returns on three different projects A, B, and Questions Probability CA Rate of Return (%) answer Which of these three projects (A, B, or C), do you recommend for investment? Justity clearly your 12.51 ? If a company is considering investing in one of these three projects, should it use its weighted average cost of capital (WACO to select between them? Justify clearly your answer. 11.51 If stock C has a beta of 1.3, and the rate of return on government securities is 4%, and the market return is 9% Calculate the required rate of return on stock 11) Comment how do you expect the value of the beta for stock A to compare to beta for stock C? Justify your answer [1] hp -2 online - Financial Management Question (4.5 Morks) CL03 A company recently reported $40 million of net income and $700 million of retained earnings. The previous retained earnings were $750 million. Al How much in dividends were paid to shareholders during the year? Assume that all dividends declared were actually paid. [1.51 B] The company management is concerned which is better as a source of capital: retaining earnings, or issuing new stocks. Therefore, they hired you as a consultant to advise them. Evaluate to the management both options in terms of relative advantages and disadvantages. [3] Heading 4 B THE 0-2 online - Financial Management Question (4 Marks) CLO4 An 16% semiannual coupon bond matures in 10 years. The bond has a face value of AED1,000 and a current yield of 16.42% AJ Calculate the bond's price. [1.5) B] Calculate the bond approximate yield to maturity (VTM). [1.5) q Do you think this bond should be classified as a "par bond", a "discount bond", or a "premium bond? Justify clearly your answer. [1] Heading B TEE -2 online - Financial Management Question (4 Marks) CLO4 The real risk-free rate is 3.75%. Inflation is expected to average 4.2% a year for the next 4 years, after which time inflation is expected to average 5.625% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 12.45%, which includes a liquidity premium of 1.125%. Aj Calculate the default risk premium. [2] B] Without further calculations, explain how do you expect the default risk premium for the following securities to differ from the default risk premium calculated in (A) [e.g. higher, lower, etc). Justify clearly your answer: i- A two-year corporate bond. [1] An 8-year treasury bond. Heading B TEE