An investor recently purchased a bond with a $1000 face value, a 10 percent coupon rate, and six years to maturity. The bond makes annual interest payments with the given rate. The said bond has a market price of $1032.50. The yield to maturity of the bond is 9.3%.
The yield to maturity (YTM) of a bond is the internal rate of return (IRR) earned by an investor who buys the bond today at the market price and holds it until maturity. To calculate the YTM, we need to use the bond's face value, coupon rate, market price, and years to maturity. We can use the following formula to calculate the YTM:
YTM = (C + (F - P)/N) / ((F + P)/2)
Where:
C = annual coupon payment
F = face value of the bond
P = market price of the bond
N = years to maturity
In this case, the bond has a face value of $1000, a 10 percent coupon rate, and six years to maturity. The annual coupon payment is $100 (0.10 x $1000), the market price is $1032.50, and the years to maturity is 6. Plugging these values into the formula, we get:
YTM = ($100 + ($1000 - $1032.50)/6) / (($1000 + $1032.50)/2)
YTM = ($100 + (-$32.50)/6) / ($2032.50/2)
YTM = ($100 + (-$5.42)) / ($1016.25)
YTM = $94.58 / $1016.25
YTM = 0.093 or 9.3%
Therefore, the yield to maturity of the bond is 9.3%.
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Acme is considering building an office building and selling it in the future. They forecast:
At t=0 it will cost them $700,000 to buy the land
At t=1 it will cost them $300,000 to develop
At t=2 it they will sell it for $2,000,000 and pay 8% of the sale price in selling expenses.
Suppose ACME's annual required rate of return is 10%, what is their NPV? (round the answer 2 decimal places and input as a whole number. commas and dollar signs are not necessary)
The NPV of ACME's to building an office building and selling it in the future is 536165.29.
The NPV (Net Present Value) of an investment is the present value of its cash inflows minus the present value of its cash outflows. To calculate the NPV of Acme's investment, we need to find the present value of each cash flow and subtract the costs from the benefits.
First, let's find the present value of the costs:
PV of land cost at t=0 = $700,000 / (1 + 0.10)^0 = $700,000
PV of development cost at t=1 = $300,000 / (1 + 0.10)^1 = $272,727.27
Next, let's find the present value of the sale price at t=2:
PV of sale price at t=2 = $2,000,000 / (1 + 0.10)^2 = $1,652,892.56
Now, let's subtract the selling expenses from the sale price:
PV of net sale price at t=2 = $1,652,892.56 - ($2,000,000 * 0.08) = $1,508,892.56
Finally, let's subtract the costs from the benefits to find the NPV:
NPV = $1,508,892.56 - $700,000 - $272,727.27 = $536,165.29
Therefore, the NPV of Acme's investment is $536,165.29.
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A single share of stock in a company has a current price of 120. Suppose that there are only four possibilities for the stock's return over the course of the next year. These possibilities, along with the probability of each occurring, are provided in the table below. IR 1-18% -10% 16% 27% P[R] 0.19 0.41 0.23 0.17 Find the stock's volatility. 0 12.19% O 16.77% O 10.67% O 15.24% 0 13.72%
The correct answer of stock's volatility is 15.24%.
A single share of stock in a company has a current price of 120. To find the stock's volatility, we need to calculate the standard deviation of the possible returns. The standard deviation is a measure of how much the possible returns deviate from the mean return.
To calculate the standard deviation, use the following formula:
σ = √( Σ (xi - μ)² / n)
Where μ is the mean, xi is the individual values in the set, and n is the number of values in the set.
First, we need to calculate the mean return. This can be done by multiplying each possible return by its probability and then summing the results:
Mean return = (1-18%)(0.19) + (-10%)(0.41) + (16%)(0.23) + (27%)(0.17) = -1.58%
Next, we need to calculate the variance of the possible returns. This can be done by subtracting the mean return from each possible return, squaring the result, multiplying by the probability, and then summing the results:
Variance = (1-18% - (-1.58%))^2(0.19) + (-10% - (-1.58%))^2(0.41) + (16% - (-1.58%))^2(0.23) + (27% - (-1.58%))^2(0.17) = 0.0238
Finally, we need to take the square root of the variance to get the standard deviation:
Standard deviation = sqrt (0.0238) = 0.1524 = 15.24%
Therefore, the stock's volatility is 15.24%.
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what is the basis in creating a sales order?
A. RFQ
B. Canvass sheet
C. Purchase order
Answer:
A sales order is a document generated by the seller specifying the details about the product or services ordered by the customer. Along with the product and service details, sales order consists of price, quantity, terms, and conditions etc.
Free cash flow to equity last year was $4 million.
It grew by 20% in the current year; it is expected to grow at a 15% rate annually for the next five years, and then assume a more normal 4% growth rate thereafter.
The firm’s cost of equity is 10% during the high growth period and then drops to 8% during the normal growth period.
What is the present value of the firm to equity investors (equity value)?
If the market value of the firm’s debt is $10 million, what is the present value of the firm (enterprise value)?
Therefore, the company's present value (stock value) to investors is $161.449891 million and the company's present value (enterprise value) is $171.449891 million.
1. The present value (equity value) of a company to equity contributors can be calculated using the discounted cash flow model (DCF). The DCF model calculates present value by discounting future cash flows by the company's cost of equity.
a. Calculate the free cash flow to equity (FCFE) for each year of peak growth.
1st year FCFE = $4M * 1.2 = $4.8M2nd year FCFE = $4.8 million * 1.15 = $5.52 millionYear 3 FCFE = $5.52 million * 1.15 = $6.348 million4th year FCFE = $6,348,000 * 115 = $7,302,000Year 5 FCFE = $7.3002 million * 1.15 = $8.39523 millionb. Take the company's cost of equity as 10% and discount the FCFE for each year of the high growth period.
Year 1 PV = $4.8M / (1 + 0.1)^1 = $4.363636MYear 2 PV = $5.52 million / (1 + 0.1)^2 = $4.553719 millionYear 3 PV = $6,348,000 / (1 + 0.1)^3 = $4,707,536,000Year 4 PV = $7.3002 million / (1 + 0.1)^4 = $4.827623 millionYear 5 PV = $8.39523 million / (1 + 0.1)^5 = $4.916377 millionc. Use the Gordon Growth Model to calculate the terminal value of the company at the end of the high growth period.
Terminal Value = FCFE Year 5 * (1 + long-term growth rate) / (cost of equity - long-term growth rate)Final = $8.39523 million * (1 + 0.04) / (0.08 - 0.04) = $223.1773 milliond. Discount the terminal value to the present value using the company's cost of equity of 10%.
Final PV = $223,177,300 / (1 + 0.1)^5 = $138,080,000e. Sum the present value of FCFE for each year of peak growth and the present value of terminal value to get the present value of the company to equity investors (equity value).
Asset Value = $4.363636M + $4.553719M + $4.707536M + $4.827623M + $4.916377M + $138.081M = $161.449891M2. The present value (enterprise value) of a company can be calculated by adding the market value of the company's debt to its equity value.
Enterprise Value = $161.449891 million + $10 million = $171.449891 millionHere to learn more about the discounted cash flow model (DCFF) at the link
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You have been asked to assess the performance of a hedge fund and have collected the following information: (1) The hedge fund has delivered a compounded annual return of 16% a year, for the last 5 years. (2) During those 5 years, the average risk free rate was 4% but the risk free rate today is 2%. (3) The S&P 500 delivered a compounded price appreciation of 18% a year, during the five years, while delivering a dividend yield of 2% each year (4) The beta for the hedge fund was 0.80. Estimate the annual excess return that the hedge fund generated, over the last five years, using the CAPM.
Question 2 options: 0.80%
0.00%
-0.40%
-0.80%
-4.00%
None of the above
The annual excess return of the hedge fund over the last five years is 12.8%. The correct answer is none of the above.
The annual excess return of the hedge fund can be estimated using the Capital Asset Pricing Model (CAPM). The CAPM formula is:
ER = RF + β (RM - RF)
Where ER is the expected return, RF is the risk-free rate, β is the beta, and RM is the expected return of the market.
Given the information in the question, we can plug in the values to find the annual excess return:
ER = 2% + 0.80 (18% - 2%)
ER = 2% + 0.80 (16%)
ER = 2% + 12.8%
ER = 14.8%
The annual excess return of the hedge fund is 14.8%. However, we need to subtract the risk-free rate to find the excess return:
Excess return = 14.8% - 2%
Excess return = 12.8%
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As the chapter discusses, differences in political, economic, and legal systems have considerable impact on the benefits, costs, and risks of doing business in various countries. The World Bank's "Doing Business Indicators" measure the extent of business regulations in countries around the world. Compare Brazil, Ghana, India, New Zealand, the United States, Sweden, and Turkey in terms of how easily contracts are enforced, how property can be registered, and how investors can be protected. Identify in which area you see the greatest variation from one country to the next.
The World Bank’s “Doing Business Indicators” measure how easily contracts are enforced, how property can be registered, and how investors can be protected in countries around the world. Comparing Brazil, Ghana, India, New Zealand, the United States, Sweden, and Turkey,
We can see the greatest variation in terms of how property can be registered. Brazil has a score of 8.8 in terms of the ease of registering property, while Ghana has a score of 2.4, India has a score of 5.4, New Zealand has a score of 8.7, the United States has a score of 8.0, Sweden has a score of 9.2, and Turkey has a score of 6.0. As we can see, there is a wide range of scores, indicating that registering property can be much more difficult in some countries than in others.
The World Bank's "Doing Business Indicators" provide a valuable tool for comparing the business environment in different countries. By looking at the indicators for enforcing contracts, registering property, and protecting investors, we can see how Brazil, Ghana, India, New Zealand, the United States, Sweden, and Turkey compare in these areas.
In terms of enforcing contracts, New Zealand and the United States rank highly, with New Zealand at number 1 and the United States at number 6. Sweden also ranks highly at number 9, while Brazil ranks much lower at number 124, India at number 163, Ghana at number 82, and Turkey at number 68.
For registering property, New Zealand again ranks highly at number 1, followed by the United States at number 37, Sweden at number 10, Turkey at number 58, Brazil at number 124, Ghana at number 122, and India at number 154.
In terms of protecting investors, the United States ranks highly at number 7, followed by New Zealand at number 29, Sweden at number 22, Turkey at number 43, Brazil at number 78, Ghana at number 96, and India at number 13.
Overall, the greatest variation from one country to the next can be seen in the area of enforcing contracts, with New Zealand ranking at number 1 and India ranking at number 163. This shows that there is a significant difference in the ease of enforcing contracts in these two countries, which can have a major impact on the benefits, costs, and risks of doing business there.
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Students are required to prepare a Powerpoint Presentation on any of the key HR issues as discussed in class:The presentation should include the following:a) the need for the studyb) the scope of the studyc) the objectives of the studyd) the limitations of the study
a.) It should explain why the HR issue you have chosen is important and worth studying.
b.) It should outline the parameters of your study
c.) It should outline the specific goals and research questions
d.) It should discuss any potential weaknesses or limitations of your study
To prepare a PowerPoint presentation on a key HR issue, you should follow the guidelines provided by your instructor. This includes discussing the need for the study, the scope of the study, the objectives of the study, and the limitations of the study.
1) The need for the study: This section should explain why the HR issue you have chosen is important and worth studying. You should provide background information on the issue and discuss its relevance to the field of HR.
2) The scope of the study: This section should outline the parameters of your study, including the population or sample you will be studying, the timeframe of the study, and the methods you will be using to collect and analyze data.
3) The objectives of the study: This section should outline the specific goals and research questions you hope to answer through your study. These should be clearly defined and measurable.
4) The limitations of the study: This section should discuss any potential weaknesses or limitations of your study, such as a small sample size or limited data availability.
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A business manager has estimated that for the next 10 years her business will experience a net annual cash inflow of $60,000. Based solely on the cash flows for the next 10 years, how much does the business worth today? Assume an expected rate of 12% Please Do not put s sigh Do not put comma Show your answer with 2 decimals Answer: A business is planning to buy a new machine with following information: Cost of Machine $65,120 Annual Cash Inflow 125,500 90,000 Annual Cash Outflow Required Rate of Return 12% Useful Life 3 years Residual Value 12,000 How much is the NPV of the above investment Please Do not put $ sigh Do not put comma Round your answer with 2 decimals You can afford to pay $6,000 every quarter of the year for 10 years for a loan with 3% interest rate compounded quarterly. What is the maximum you can borrow? Please write your answer with No s sign No comma Round to two decimal places Answer: The manager of a business is considering a purchase of a new machine for $35,000. It expects that for the following five years cash inflow will be $10,000, $20,000, $50,000, $70,000 and $75,000 as its business expands. If the company requires a return of 14% on new investment how much will the net present value of this investment be? Please write your answer with No $ sign No comma round to two decimal places Answer: For a bank loan Of $20,000, with interest rate of 9% compounded annually and the maturity date is in 5 years. How much will the annual payments be? Please Do not put $ sigh Do not put comma Show your answer with 2 decimals Answer:
1. The present value of the business based on the net annual cash inflow for the next 10 years is $19,320.
2. The NPV of the investment in the new machine is $110,153.37.
3. The maximum amount that can be borrowed is $4,242.
4. The annual payments for the bank loan will be $5,240.
To calculate the present value of the business based on the net annual cash inflow for the next 10 years, we can use the present value of annuity formula:
PV = C * [(1 - (1 + r)^(-n)) / r]
Where PV is the present value, C is the net annual cash inflow, r is the expected rate of return, and n is the number of years.
Plugging in the given values:
PV = $60,000 * [(1 - (1 + 0.12)^(-10)) / 0.12]
PV = $60,000 * [0.322]
PV = $19,320
Therefore, the present value of the business based on the net annual cash inflow for the next 10 years is $19,320.
For the NPV of the investment in the new machine, we can use the net present value formula:
NPV = -C0 + (C1 / (1 + r)^1) + (C2 / (1 + r)^2) + ... + (Cn / (1 + r)^n)
Where NPV is the net present value, C0 is the initial cost of the investment, C1, C2, ... Cn are the annual cash inflows, r is the required rate of return, and n is the number of years.
Plugging in the given values:
NPV = -$65,120 + ($125,500 / (1 + 0.12)^1) + ($90,000 / (1 + 0.12)^2) - ($12,000 / (1 + 0.12)^3)
NPV = -$65,120 + $112,054.55 + $71,772.50 - $8,553.68
NPV = $110,153.37
Therefore, the NPV of the investment in the new machine is $110,153.37.
For the maximum amount that can be borrowed with the given quarterly payments and interest rate, we can use the present value of annuity formula:
PV = C * [(1 - (1 + r)^(-n)) / r]
Where PV is the present value, C is the quarterly payment, r is the quarterly interest rate, and n is the number of quarters
Plugging in the given values:
PV = $6,000 * [(1 - (1 + 0.03)^(-40)) / 0.03]
PV = $6,000 * [0.707]
PV = $4,242
Therefore, the maximum amount that can be borrowed is $4,242.
For the annual payments for the bank loan, we can use the annuity payment formula:
C = PV * [r / (1 - (1 + r)^(-n))]
Where C is the annual payment, PV is the present value of the loan, r is the annual interest rate, and n is the number of years.
Plugging in the given values
C = $20,000 * [0.09 / (1 - (1 + 0.09)^(-5))]
C = $20,000 * [0.262]
C = $5,240
Therefore, the annual payments for the bank loan will be $5,240.
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A company acquires another company for $5 million. The fair value of the acquired company’s identifiable assets was $4 million, and its liabilities were $1 million. Using formal journal entry form journalize the above transaction.
The journal entry reflects that the acquired company had assets of $4 million and liabilities of $1 million. The cash payment of $5 million is used to cover both the assets and liabilities of the acquired company, with the remaining $1 million reflecting the amount of goodwill the company has.
In order to journalize the transaction in which a company acquires another company for $5 million, the following journal entry would be used:
Debit Acquired Company's Assets (4 million)
Debit Goodwill (1 million)
Credit Cash (5 million)
Note: It's important to consult with a certified accountant to ensure the accuracy and compliance of financial statements and reports
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The term "cash build" is measured as:
Question 3 options:
A)
net income plus depreciation
B)
net sales minus expenses minus (plus) an increase (decrease) in inventories
C)
net sales minus (plus) an increase (decrease) in receivables
D)
net income plus depreciation minus (plus) an increase (decrease) in payables
The term "cash build" is measured as b. net sales minus expenses minus (plus) an increase (decrease) in inventories.
Cash build refers to the amount of cash generated by a company's operating activities after accounting for changes in working capital, such as inventory, receivables, and payables.
Option B represents the correct formula for measuring cash build, where net sales are reduced by expenses and any increase or decrease in inventory. This formula is also known as the cash conversion cycle.
Option A, net income plus depreciation; Option C, net sales minus (plus) an increase (decrease) in receivables; Option D, net income plus depreciation minus (plus) an increase (decrease) in payables do not account for changes in working capital and therefore do not represent the cash build measure accurately.
Thus the term "cash build" is measured as net sales minus expenses minus (plus) an increase (decrease) in inventories.
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A company is projected to anticipate a free cash flow of $20 million next year and the company anticipates the cash flow to decrease at a rate of 10% per year in perpetuity. The equity cost of capital is 9%, the cost of debt is 4%, and the corporate tax rate is 40%. With a DTE ratio of 0.4, what is the value of the company close to?
The value of the company is close to $62.25 million.
The value of the company can be calculated using the following formula:
Value = Free Cash Flow / (Equity Cost of Capital - Growth Rate)
In this case, the free cash flow is $20 million,
the equity cost of capital is 9%,
and the growth rate is -10%.
Plugging these values into the formula gives us:
Value = $20 million / (0.09 - (-0.10))
Value = $20 million / 0.19
Value = $105.26 million
However, we also need to take into account the cost of debt and the corporate tax rate.
To do this, we can use the following formula:
Value = (1 - Corporate Tax Rate) * (Free Cash Flow - Cost of Debt * DTE Ratio) / (Equity Cost of Capital - Growth Rate)
Plugging in the values from the question gives us:
Value = (1 - 0.40) * ($20 million - 0.04 * 0.4 * $20 million) / (0.09 - (-0.10))
Value = 0.60 * ($20 million - $0.32 million) / 0.19
Value = $62.25 million
Therefore, the value of the company is close to $62.25 million.
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What are two responsibilities of a Lean-Agile Center of Excellence? (Choose two. )
To help establish relentless improvement
To coordinate Portfolio Level events
To lead Inspect and Adapts events
To implement a new organizational structure
To foster SAFe Communities of Practice
Two of a Lean-Agile Center of Excellence's duties are: To promote continuous progress, SAFe Communities of Practice should be promoted.
A focused group inside an organisation known as a Lean-Agile Center of Excellence is in charge of promoting and assisting in the adoption of Lean-Agile concepts, methods, and principles. A Lean-Agile Center of Excellence's main objective is to make sure that the firm can continuously enhance its business processes and produce better results. This entails assisting teams with coaching and direction, enabling the adoption of fresh approaches, and promoting an innovative and lifelong learning culture. A Lean-Agile Center of Excellence is also in charge of overseeing Inspect and Adapts events, supporting SAFe Communities of Practice, and organising Portfolio Level events. Organizations can increase their capacity to adjust to shifting market conditions, deliver value to consumers more successfully, and accomplish these goals by building a Lean-Agile Center of Excellence.
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Research carefully and comment on whether the Hong Kong Hang Seng Index (HSI) is worth investing compared with the S&P 500. Who would invest in HSI as opposed the S&P? How would risk-averse, risk-neutral and risk-loving investor pick? Use secondary sources to support. Please address every question directly.
The Hong Kong Hang Seng Index (HSI) and the S&P 500 are both stock market indices that can be used for investment purposes.
However, whether one is worth investing in compared to the other depends on a variety of factors, including the investor's risk tolerance, investment goals, and market conditions.
Overall, whether the HSI is worth investing in compared to the S&P 500 depends on a variety of factors, including the investor's risk tolerance, investment goals, and market conditions. It is important for investors to carefully research and consider these factors before making any investment decisions.
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Consider a forward contract to be matured in 9 months on a coupon-bearing bond whose current price is $900. A coupon payment of $40 is expected after four months. The 4-month and the 9-month risk-free interest rates continuously compounded are both 6% per annum. What is the equilibrium forward price?
The equilibrium forward price of the forward contract is $894.96.
The equilibrium forward price of a forward contract can be calculated using the formula:
F = S0 * e^(r * T)
Where F is the forward price, S0 is the current price of the asset, r is the risk-free interest rate, and T is the time to maturity of the contract.
In this case, the current price of the bond is $900, the risk-free interest rate is 6% per annum, and the time to maturity is 9 months. However, we also have to consider the coupon payment of $40 that is expected after 4 months.
To calculate the equilibrium forward price, we first need to calculate the present value of the coupon payment using the 4-month risk-free interest rate:
PV = 40 * e^(-0.06 * (4/12)) = 38.78
Next, we can calculate the forward price by subtracting the present value of the coupon payment from the current price of the bond and then multiplying by the exponential of the 9-month risk-free interest rate:
F = (900 - 38.78) * e^(0.06 * (9/12)) = 894.96
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Suppose that the annual return for a particular stock follows the same distribution every year, and that the return for any given year is independent of the returns for any prior years. You are given that the stock's average annual return of a 35 year period was 15%, and that the stock's volatility over that period was 32%. Calculate the upper bound of the 95% confidence interval for the stock's expected annual return. Use the approximation formula from Berk and DeMarzo.
A. 25.82%
B. 23.49%
C. 25.04%
D. 22.72%
E. 24.27%
The upper bound of the 95% confidence interval for the stock's expected annual return is 23.49%.The correct answer is B. 23.49%.
To calculate the upper bound of the 95% confidence interval for the stock's expected annual return, we can use the approximation formula from Berk and DeMarzo:
Upper bound = Average annual return + (1.96 x Volatility / √N)
Where N is the number of years in the period.
Plugging in the given values:
Upper bound = 15% + (1.96 x 32% / √35)
Upper bound = 15% + 10.49%
Upper bound = 25.49%
However, we need to subtract the average annual return from the upper bound to get the actual upper bound of the confidence interval:
Upper bound - Average annual return = 25.49% - 15% = 10.49%
Therefore, the upper bound of the 95% confidence interval for the stock's expected annual return is 10.49% above the average annual return, or 23.49%.
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A risk-free 1-year 6% coupon bond has YTM=9% while a risk-free 1-year 16% coupon bond has YTM=9.1%. It is important to keep at least 7 decimal digits for all calculations!
a) Find the bonds’ prices.
b) Find 1-year spot rate
c) Find 6-month spot rate
d) Consider a 1-year bond that currently sells at par. Assuming interest rates are not random, do you think this bond will be selling at a discount, premium, or at par 6 months from now? No calculations are required, but, if you cannot answer this question without calculations, you can find the coupon rate for this bond and compute its price 6 month from now.
e) Find the price of a 1-year 10% coupon bond
The price of Bond B= $100.00000013
How to solve1) Bond A
a)Maturity(n)= 1 yearb) Coupon(C)= 6%c)Compounding(k)= semiannual(2)d)YTM(i)=9%e)Par value(P)= $1002) Bond B
a)Maturity(n)= 1 year
b) Coupon(C)=16%
c)Compounding(k)= semiannual(2)
d)YTM(i)=9.1%
e) Par value(P)= $100
The other answers are in the txt file attached below
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In a particular setting where the newsvendor model applies, demand is normally distributed and the critical ratio is known to be 0.65. Then, if the profit maximizing quantity were ordered, the expected sales isa) less than or equal tob) greater than or equal toc) is exactly equal tod) can be less than, equal to, or greater than
In a particular setting where the newsvendor model applies, demand is normally distributed and the critical ratio is known to be 0.65. Then, if the profit maximizing quantity were ordered, the expected sales is greater than or equal to. Therefore the correct option is option B.
The critical ratio (CR) is defined as the ratio between the expected profit and the cost of ordering an item. In a newsvendor setting, where demand is normally distributed and the CR is known to be 0.65, the profit maximizing quantity is given by the formula: Q = (CR × σ)/(μ - CR)
The expected sales can be calculated as the sum of the expected profit and the cost of ordering an item. As the cost of ordering an item is given and the expected profit is always greater than or equal to the cost of ordering an item, the expected sales will be greater than or equal to the cost of ordering an item.
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Dundar Berhad (Dundar) is a retailer of a range of new and used cars from sites in major cities in peninsular Malaysia. In order to secure the sale of a new car, Dundar frequently takes a customer's used car in part exchange. The used car is then sold to another customer or is sent to an auction to be sold. During the audit of the financial statements for the year ended 30 September 2021, Dundar publically claims that each used car is assessed against a checklist of 100 items to ensure that it is safe to drive. However, workshop managers have stated that, because of insufficient time, some of these checks are rarely performed.
Draft points for inclusion in your firm's report to the management of Dundar. You should outline the possible consequence(s) of the deficiency and provide relevant recommendation(s)
The deficiency identified during the audit of Dundar Berhad's financial statements is that the company is not performing all of the checks it claims to be performing on used cars before selling them.
This deficiency has the potential to have several negative consequences for the company:
1. Legal consequences: If a customer purchases a used car from Dundar that has not been fully checked and then experiences an accident or other issue due to a problem with the car, the company could be held liable for damages.
2. Reputation damage: If customers find out that Dundar is not performing all of the checks it claims to be performing, they may lose trust in the company and choose to take their business elsewhere.
3. Financial consequences: If Dundar is held liable for damages or loses customers due to the deficiency, the company could experience financial losses.
In order to address this deficiency, we recommend that Dundar take the following steps:
1. Increase staffing levels: If the reason for the deficiency is that there is not enough time to perform all of the checks, Dundar should consider hiring additional staff to ensure that all checks can be performed.
2. Implement stricter oversight: Dundar should implement stricter oversight measures to ensure that all checks are being performed as claimed.
3. Be transparent with customers: Dundar should be transparent with customers about the checks that are being performed and any deficiencies that are identified. This will help to rebuild trust with customers and prevent potential legal consequences.
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Short Selling
Two investors of M Securities place two different positions over the same Stock ( BRK-B U.S.: Nasdaq )
Investor
Position
$Price /share
# shares
Investor 1
Long ( buy and hold)
310.00
100K
Investor 2
Short Sell
310.00
100K
Securities Lending & Borrowing Fee 6% (term 6 months)
Assume that BRK distributes a dividend yield of 0,1 in 2 months.
After 6 months, BRK price declines to $270/ share. Calculate the cash flow and P&L for each investor.
How about if it rises to $350/ share.
What is the best investment strategy when the market is bearish versus bullish?
Investor 1: When the market is bearish, the best investment strategy is to buy and hold the stock.
Investor 2: When the market is bearish, the best investment strategy is to short sell the stock.
Investor 1:
If the price of BRK-B declines to $270/ share, the investor would suffer a loss of $3000 ($30/ share x 100K shares). After the 6 months period, their cash flow would be -$3000, and their P&L would be -$3000.
Investor 2:
If the price of BRK-B declines to $270/ share, the investor would benefit from a profit of $3000 ($30/ share x 100K shares). After the 6 months period, their cash flow would be $3000, and their P&L would be $3000.
If the price of BRK-B rises to $350/ share, the investor with the long position would benefit from a profit of $10,000 ($40/ share x 100K shares). After the 6 months period, their cash flow would be $10,000, and their P&L would be $10,000. Meanwhile, the investor with the short position would suffer a loss of $10,000 ($40/ share x 100K shares). After the 6 months period, their cash flow would be -$10,000, and their P&L would be -$10,000.
When the market is bearish, the best investment strategy is to short sell the stock, as it has the potential to make more profit in a declining market. When the market is bullish, the best investment strategy is to buy and hold the stock, as it has the potential to make more profit in a rising market.
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You purchased a collar by buying a stock for $30, buying an OTM put with strike price 24 for 2.50 and writing an OTM call with strike price 33? The price of the call was 4.50. What is the maximum possible profit from the collar?
The maximum possible profit from the collar is $5.
A collar is an options strategy that involves buying a stock, buying a put option, and selling a call option. The purpose of the collar is to protect against downside risk while also limiting potential upside profit. In this case, the maximum possible profit from the collar can be calculated as follows:
1. Calculate the cost of the collar:
Cost of collar = Cost of stock + Cost of put - Cost of call
Cost of collar = $30 + $2.50 - $4.50 = $28
2. Calculate the maximum possible profit:
Maximum profit = Strike price of call - Cost of collar
Maximum profit = $33 - $28 = $5
Therefore, the maximum possible profit from the collar is $5.
It is important to note that the maximum possible profit is limited by the strike price of the call option, which is why the collar strategy is often used by investors who want to protect against downside risk while also limiting potential upside profit.
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QUESTION 1 Identify an organization in Malaysia and summarize
its code of conduct and business ethics. (50 MARKS)
Subject : Ethic in business
One organization in Malaysia that has a code of conduct and business ethics is Petronas. Petronas is a multinational oil and gas company that is headquartered in Kuala Lumpur, Malaysia.
Petronas has a code of conduct and business ethics that outlines the principles and standards that all employees, directors, and business partners must adhere to. These principles and standards include:
1. Integrity: Petronas employees, directors, and business partners are expected to act with integrity and honesty at all times
2. Transparency: Petronas is committed to being transparent in all of its business dealings and communications.
3. Accountability: Petronas employees, directors, and business partners are expected to be accountable for their actions and decisions.
4. Respect: Petronas is committed to treating all employees, directors, business partners, and stakeholders with respect and dignity.
5. Sustainability: Petronas is committed to operating in a sustainable and responsible manner.
In addition to these principles and standards, Petronas also has specific policies and guidelines related to business ethics, such as anti-bribery and anti-corruption policies, conflict of interest policies, and whistle-blowing policies.
In summary, Petronas is an organization in Malaysia that has a code of conduct and business ethics that outlines the principles and standards that all employees, directors, and business partners must adhere to, including integrity, transparency, accountability, respect, and sustainability.
Petronas also has specific policies and guidelines related to business ethics, such as anti-bribery and anti-corruption policies, conflict of interest policies, and whistle-blowing policies.
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One of the most well-known organizations in Malaysia is Petronas, the national oil company. Petronas has a comprehensive code of conduct and business ethics that guide its operations and decision making. The code of conduct outlines the company's values and principles, and sets guidelines for employee conduct, business practices, and compliance with laws and regulations.
One of the main principles of Petronas' code of conduct is integrity, which means that the company and its employees are expected to act with honesty and transparency in all their dealings. The code of conduct also emphasizes the importance of respect, and requires employees to treat others with dignity and fairness.
Another important aspect of Petronas' code of conduct is its commitment to responsible and ethical business practices. This includes avoiding conflicts of interest, not accepting or giving bribes, and complying with all applicable laws and regulations. Petronas also has policies in place to ensure that it operates in an environmentally and socially responsible manner.
In conclusion, Petronas is an organization in Malaysia that has a strong code of conduct and business ethics that guide its operations and decision making. The code of conduct emphasizes values such as integrity, respect, and responsibility, and sets guidelines for employee conduct, business practices, and compliance with laws and regulations.
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The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 5% per year. Callahan's common stock currently sells for $21.25 per share; its last dividend was $2.40; and it will pay a $2.52 dividend at the end of the current year.
a. Using the DCF approach, what is its cost of common equity?
b. If the firm's beta is 0.60, the risk-free rate is 6%, and the average return on the market is 13%, what will be the firm's cost of common equity using the CAPM approach?
c. If the firm's bonds earn a return of 10%, based on the bond-yield-plus-risk-premium approach, what will be rs?
d. If you have equal confidence in the inputs used for the three approaches, what is your estimate of Callahan's cost of common equity?
a. Using the DCF approach, the cost of common equity can be calculated as follows:
Cost of common equity = (D1/P0) + g
Where D1 is the expected dividend at the end of the current year, P0 is the current stock price, and g is the expected growth rate.
Cost of common equity = ($2.52/$21.25) + 0.05
Cost of common equity = 0.1186 + 0.05
Cost of common equity = 0.1686 or 16.86%
b. Using the CAPM approach, the cost of common equity can be calculated as follows:
Cost of common equity = Rf + β(Rm - Rf)
Where Rf is the risk-free rate, β is the beta of the stock, and Rm is the average return on the market.
Cost of common equity = 0.06 + 0.60(0.13 - 0.06)
Cost of common equity = 0.06 + 0.60(0.07)
Cost of common equity = 0.06 + 0.042
Cost of common equity = 0.102 or 10.2%
c. Using the bond-yield-plus-risk-premium approach, the cost of common equity can be calculated as follows:
Cost of common equity = Bond yield + Risk premium
Cost of common equity = 0.10 + 0.04
Cost of common equity = 0.14 or 14%
d. If you have equal confidence in the inputs used for the three approaches, you can calculate the average of the three estimates to get an estimate of Callahan's cost of common equity.
Cost of common equity = (16.86% + 10.2% + 14%)/3
Cost of common equity = 13.69%
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Public Good Contribution: Three players live in a town, and each can choose to contribute to fund a streetlamp. The value of having the streetlamp is 3 for each player, and the value of not having it is 0. The mayor asks each player to contribute either 1 or nothing. If at least two players contribute then the lamp will be erected. If one player or no players contribute then the lamp will not be erected, in which case any person who contributed will not get his money back.
Required:
Write down each player's best response correspondence
The best response for either of the players is to contribute 1 if at least one of the other players contributes 1, and to contribute nothing if both of the other players contribute nothing.
How should the players respond ?In game theory, a best response correspondence is a mapping from each player's set of possible strategies to a subset of those strategies that are best responses to the strategies chosen by the other players.
Player 1's best response correspondence indicates that if at least one of the other players contributes 1, then Player 1 should also contribute 1, as this would result in the streetlamp being erected and a utility of 3 for each player. If neither of the other players contribute, then Player 1 should also not contribute, as there would be no streetlamp and a utility of 0 for each player. The same logic applies to Player 2 and Player 3.
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Brains Inc., and Zombies Inc., are in direct competition selling attenuators. Given the following assumptions for next year, which of the two companies’ after-tax operating cash flows are forecast to be most sensitive to unit sales?
Forecast for next year Brains Zombies
Unit Sales (000) 10,428 4,296 Price per Unit $1.50 $1.50 Variable Cost per Unit $.55 $.60 Fixed Costs (exc. Depn) ($'000) $4,618 $1,
Depreciation ($'000) $784 685 $551 Tax Rate 19% 20%
Brains Inc.'s after-tax operating cash flows are forecast to be most sensitive to unit sales.
The after-tax operating cash flows for both Brains Inc. and Zombies Inc. can be calculated as follows:
Brains Inc.:
Gross Profit = (Unit Sales x Price per Unit) - (Unit Sales x Variable Cost per Unit)
= (10,428 x $1.50) - (10,428 x $.55)
= $15,642 - $5,735.40
= $9,906.60
Operating Profit = Gross Profit - Fixed Costs - Depreciation
= $9,906.60 - $4,618 - $784
= $4,504.60
After-Tax Operating Cash Flow = Operating Profit x (1 - Tax Rate)
= $4,504.60 x (1 - 0.19)
= $3,648.73
Zombies Inc.:
Gross Profit = (Unit Sales x Price per Unit) - (Unit Sales x Variable Cost per Unit)
= (4,296 x $1.50) - (4,296 x $.60)
= $6,444 - $2,577.60
= $3,866.40
Operating Profit = Gross Profit - Fixed Costs - Depreciation
= $3,866.40 - $1,685 - $551
= $1,630.40
After-Tax Operating Cash Flow = Operating Profit x (1 - Tax Rate)
= $1,630.40 x (1 - 0.20)
= $1,304.32
Based on the calculations, Brains Inc.'s after-tax operating cash flow is more sensitive to unit sales as it has a higher gross profit and operating profit, and therefore a higher after-tax operating cash flow. Any changes in unit sales will have a greater impact on Brains Inc.'s after-tax operating cash flow compared to Zombies Inc.
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Discuss accounting treatment within the perspective of MFRS 9 for the following scenario:
1. Company A owns preference shares in Company B. The preference shares entitle entity A to dividends, but not to any voting rights.
2. ABC Sdn Bhd purchase goods from a XYZ Enterprise on 60 days’ credit.
3. In a lawsuit brought against an entity, a group of people are collectively seeking compensation for damages to their health as a result of contamination to the nearby land believed to be caused by waste from that entity’s production process.
4. An entity has airplane as property plant and equipment, 2 buildings as investment property and acquired patents in its statement of financial position.
According to MRFS 9 we find as responses to the given scenarios
1. They must be classified as a financial asset.
2. Must be classified as a trade account receivable
3. Must be classified as a provision
4. Must be classified as property, plant and equipment.
What are the bases of the MRFS 9 agreement for these scenarios?1. According to NIF 9, the preference shares of company A in company B must be classified as a financial asset. This is because the preference shares entitle entity A to dividends, but not to any voting rights.
2. In accordance with FRS 9, the purchase of goods by ABC Sdn Bhd from XYZ Enterprise on 60 day credit should be classified as trade receivable. This is because ABC Sdn Bhd must receive payment from XYZ Enterprise within the next 60 days.
3. In accordance with NIF 9, any liability resulting from the lawsuit filed against the entity must be classified as a provision. This is because the group of people is collectively seeking compensation for damage to their health, which is an uncertain outcome and should therefore be classified as a provision.
4. According to NIF 9, the aircraft must be classified as property, plant and equipment. The two buildings must be classified as investment property and the acquired patents must be classified as intangible assets.
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Explain in your own words the difference between the capacity of
a client and his repayment comfortability
The capacity of a client refers to the maximum amount of money they can borrow whereas Repayment comfortability, refers to the level of ease with which a client can repay a loan.
The capacity of a client refers to the maximum amount of money they can borrow based on their income, expenses, and debt levels. It is a measure of their ability to take on additional debt and repay it on time. Repayment comfortability, on the other hand, refers to the level of ease with which a client can repay a loan.
It takes into account their personal preferences and financial situation, such as how much money they have left over after paying their bills and whether they feel comfortable taking on additional debt. While capacity is a more objective measure, repayment comfortability is a more subjective measure that considers the client's personal feelings and financial situation.
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Hard Hat Construction's stock is currently selling at an equilibrium price of $30 per share. The firm has been experiencing a 6% annual growth rate. Last year's earnings per share, E(0) were $4.00, and the dividend payout ratio is 40%. The risk-free rate is 8%, and the market risk premium is 5%. If systematic risk (beta) inceases by 50%, and all other factors remain constant, by how much will the stock price change? (Hint: Use four decimal places in your calculations.)
a. -$7.33
b. +$7.14
c. -$15.00
d. -$15.22
e. +$22.63
If systematic risk (beta) inceases by 50%, and all other factors remain constant, the stock price change will be -$15.22
The correct answer is option d.
To calculate the change in stock price, we need to use the Capital Asset Pricing Model (CAPM), which is:
E(R) = Rf + β(Rm - Rf)
Where E(R) is the expected return on the stock, Rf is the risk-free rate, β is the systematic risk (beta), and Rm is the market risk premium.
First, we need to calculate the current expected return on the stock using the CAPM formula:
E(R) = 0.08 + 1.5(0.05) = 0.155
Next, we need to calculate the new beta after it increases by 50%:
New β = 1.5 * 1.5 = 2.25
Now we can calculate the new expected return on the stock using the new beta:
New E(R) = 0.08 + 2.25(0.05) = 0.1925
Finally, we can calculate the change in stock price by using the Gordon Growth Model (GGM), which is:
P = D(1 + g) / (r - g)
Where P is the stock price, D is the dividend, g is the growth rate, and r is the required rate of return.
The current stock price is $30, the dividend is $4.00 * 0.40 = $1.60, the growth rate is 0.06, and the required rate of return is the expected return on the stock calculated using the CAPM formula.
The current stock price using the GGM formula is:
P = $1.60(1 + 0.06) / (0.155 - 0.06) = $30.00
The new stock price using the new expected return on the stock is:
New P = $1.60(1 + 0.06) / (0.1925 - 0.06) = $14.78
The change in stock price is:
ΔP = New P - P = $14.78 - $30.00 = -$15.22
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Q20) You currently owe $4,263.00 of your credit card that charges an annual interest rate of 18.88% . You make $180.00 of new charges every month and make a payment of $192.00 every month. What will your credit card balance be in three months? (2 points)
By making payment of $192.00 every month ,the credit card balance in three months will be $4,430.77.
Step 1: Calculate the monthly interest rate by dividing the annual interest rate by 12:
18.88% / 12 = 1.573%
Step 2: Calculate the interest charged each month by multiplying the monthly interest rate by the current balance:
$4,263.00 x 1.573% = $67.05
Step 3: Calculate the new balance each month by adding the interest charged and the new charges, and subtracting the payment:
$4,263.00 + $67.05 + $180.00 - $192.00 = $4,318.05
Step 4: Repeat steps 2 and 3 for the next two months:
Month 2: $4,318.05 x 1.573% = $67.92
$4,318.05 + $67.92 + $180.00 - $192.00 = $4,373.97
Month 3: $4,373.97 x 1.573% = $68.80
$4,373.97 + $68.80 + $180.00 - $192.00 = $4,430.77
The credit card balance in three months will be $4,430.77.
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You have just retired with savings of $1.5 million. If you expect to live for 25 years and to earn 9% per year on your savings, how much can you afford to spend each year? Assume that you spend the money at the start of each year.
Answer:
Saving Amount=Future withdrawals
Explanation:
1,500,000=x times 1- (1 + 0.09) -25 x(1+0.09)
1,500,000=× times 10. 706611764
x=$150,100.34
The Answer is amount you can afford to spend each year when you have retired with $1.5 million and expect to live for 25 years is $135,000.
This calculation is based on the assumption that you will earn 9% annually on your savings and you will spend the money at the start of each year.
To calculate this amount, we can use the following formula:
Annual Spending = Savings × (1 + Interest Rate) Number of Years - 1
For this particular situation, this equation becomes:
Annual Spending = $1,500,000 × (1 + 0.09)25 - 1 = $135,000
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Compare and contrast investment in regualr Treasury bonds and
TIPS. What factors should an investor consider when deciding
between these two products?
Both Treasury bonds and TIPS (Treasury Inflation-Protected Securities) are debt securities issued by the U.S. government. However, there are some key differences between these two types of bonds that investors should consider.
Regular Treasury bonds offer a fixed interest rate and are considered one of the safest investments available. These bonds are backed by the full faith and credit of the U.S. government, and the interest payments are guaranteed. However, regular Treasury bonds do not provide protection against inflation, meaning that the purchasing power of the bond's principal and interest payments may decrease over time due to rising prices.
TIPS, on the other hand, offer investors protection against inflation. The principal value of TIPS is adjusted based on changes in the Consumer Price Index, so the purchasing power of the bond's principal and interest payments is maintained over time. However, the interest rate on TIPS is typically lower than that of regular Treasury bonds, and the value of the bond can decrease if there is deflation.
When deciding between regular Treasury bonds and TIPS, investors should consider their investment goals, time horizon, and tolerance for risk. If an investor is concerned about inflation and plans to hold the bond for a long period of time, TIPS may be a better choice. However, if an investor is looking for a higher interest rate and is less concerned about inflation, regular Treasury bonds may be a better fit.
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