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Sir can you help me out in this question please.
A company has agreed to lease a machine for a period of 8 years,with equal annual payments payable at the start of each year.
The NPV of the agreement is at a rate of 10% is $52000.
What is the annual lease payment?Please let me know how to solve this.
This one too.
The share price of CP Plc is $4 per share.
They announce a 1 for 5 right issue at $3.10 per share.
What % of the rights offered to a shareholder does the shareholder need to take up as to have no net cashflow resulting from the issue?Question 1:
The present value of the payments must be 52,000.
If the payment is X each year, then because the payments are in advance the PV of the first payment is X. For the present value of the remaining 7 payments, you multiply by the 7 year annuity factor at 10%.
Now you should be able to calculate X since you know what the NPV is.
Question 2:
You really should watch the free lecture on this! I cannot type out the whole lecture on here.
You will know that the shareholders will make no gain or loss whatever they do.
To have no net cash flow effect, then their new shareholding at the TERP must be equal to the value of their existing shareholding.If you read the page before commencing the test it explains that after completing the test you can review your answers and see what the correct answers were.
It also says that if you don’t understand the correct answer then if you post the question on here then I will give the workings.
(The questions in the test are selected at random from a large bank of questions, so every test is likely to be different. We are not able to show the workings in the solutions to the text – only the correct answers.)
Hi.
can you please let me know how to solve this?
the current spot rate for the US $ against the pound is dollar/pound 1.8420.
interest in the US is 5% pa, where as 4% in the UK.
what would you expect the 3 month forward rate to be?Help needed here as well.
PQR has demanded 7500 units per month.
Each unit costs $5, ordering costs are $100 per order and inventory holding cost is 10% of purchase price per year.
There is a lead time of 30 days between placing an order and receiving delivery.If they order the economic order quantity each time, how frequently will they place an order (to the nearest day)?
Please let me know how to solve.
A company has sales of $200M per year.
Customers currently take 40 days to pay.
The company is considering offering a discount of 1% for payment within 15 days and expects that 60% of customers will take advantage of discount..What is the effective annual cost of offering the discount?
LJM Co is considering investing in a new project which will cost $160000.
It has an expected life of 4years and scarp value of $20000.
The anticipated net operating cashflows are as follow:
Year 1 $40000
Year 2 $60000
Year 3 $80000
Year 4 $20000Cost of capital is 10% pa.
What is the ARR?I’m confused as to what to do about the cost of capital. Where and how does it fit?
Please sir, I’d be really grateful if you could just answer these. I don’t need explanation, just the solved answers to my questions would do.
Thanks.
Question 1:
The forward rate is determined by the relative interest rates, using the interest rate parity formula on the formula sheet.
Hc in the formula is the US 3 month rate = 5% x 3/12 = 1.25% (or 0.0125)
Hb is the UK 3 month rate = 4% x 3/12 = 1% (or 0.01)
So is the current spot rate = 1.8420
For the EOQ you use the formula and should get 6,000 units.
As the total demand is 90,000 a year, it means they will place 90,000 / 6,000 = 15 orders a year.
With 365 days a year, it means they will place an order every 365 / 15 = 24 days
question 3:
The discount is effectively 1/99 = 0.010101 over a period of 25 days (40 – 15)
So the annual effective rate is 1.010101^(365/25) – 1
Question 4:
That cost of capital is irrelevant when calculating the ARR. It is there to check that you know it is not relevant 🙂
PS: you haven’t mentioned what the market price is so i’m assuming its $3.20 from the revision mock i attempted.
First calculate dividend per share using dividend yield of 8%.
Dividend yield = dividend per share/market price per share
0.08=DPS/3.20
DPS = 0.256Now calculate EPS using dividend cover
Dividend cover = Earnings per share/dividend per share
2.4=EPS/0.256
EPS= 0.6144PE ratio= MPS/EPS
PE ratio = 3.20/0.6144
=5.20well, then sorry.
The mock i attempted had a market price of $3.20.
I don’t know how else to calculate without the MP :/A friend of mine told me to calculate this by using this formula
PE ratio*Dividend cover =1/Dividend yield
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