- This topic has 19 replies, 5 voices, and was last updated 9 years ago by
.
- Posts
Dear Sir,
Kindly show me the workings for the below Qs :
1. ABC Plc has just paid a dividend of 30c per share.
It’s share price is $4.20 – one year ago it’s share price was $3.50.
What is the total shareholder return over the year?2. PQR Co has a demand of 7500 units per month.
Each units costs $5 ; ordering cost are $100 per order and the inventory holding cost is 10% of purchase price per year.
There is a lead time between placing an order and receiving delivery.
If they order the economic order quantity each time, at what level of inventory should a new order be placed ( to the nearest units) ?3. RI Co has in issue 6% redeemable bonds, quoted at 120% ex int.
Which of the following statements is consistent with the above information?
**How to calculate the redemption yield 4%?4. BI Co has in issue 8% irredeemable bonds quoted at 86% ext int.
The rate of corporation tax is 25% ; personal tax is to be ignored.
What is the return to investors?5. R plc has in issue $400 000 8% bonds, redeemable in 5years time at a premium of 10%.
Investors require a return of 12% p.a.
The rate of corporation tax is 35%.
What is the total market value of debt in issue ?6. Beta plc is about to pay a dividend of $0.40 per share. Dividends are growing at 5% p. a. The shareholders required rate of return is 12% p.a.
The rate is corporation tax is 25%.
What is the current market value per share?7. A company has just paid dividend of $0.23 per share.
Shareholders are expecting the dividend to remain at $0.23 per share next year, but to increase at an average rate of 3% p.a thereafter.
Shareholder required rate of return is 12%, and the corporation tax is 25%.
What will be the current market value per share ( to the nearest cent)?Thanks sir.
Regards,
SarasFor q1, i think:
Total shareholder return would be the Cap gain + Dividends
so that might be $4.20-$3.5 + 30c / 3.50
= 28.57%
For Q4 probably :
Mv of irredeemable debt = Interest / Investor’s return
so Return = Interest / MV
= 8% / 86%
= 9.3% (Did not take tax as it is charged only to companies, not to investors, so I hv no clue why that part is included in the question)
and q3, as far as I knw, Calculation of Red yield is not part of F9 syllabus, so I am really curious where u got that MCQ from ? :S
For Q 2:
You have not typed the full question – it says that the lead time is 30 days.
So they need to place an order when they have enough in inventory to last 30 days.
Since the demand is 7500 a month, and with 365 days in a year, to last 30 days they need to order when they have 30 x 12×7500/365 = 7397 units in inventory.Question 3:
The interest yield is 6/120 = 5%
You cannot be expected to calculate the redemption yield, but you are expected to know that it takes account not just the interest but also (in this case) the loss there is on repayment. So it must be less than 5%.
Only one answer satisfies this.Question 5:
The receipts to the investor are 8% x 400,000 = 32,000 p.a. for 5 years
Also, a receipt in 5 years time of 400,000 + 10% = 440,000.The market value is the PV of these flows, discounted at 12%, which is $364,840
(Corporation tax is irrelevant – it is investors who fix the market value)
Question 6:
Using the dividend growth formula with Do = 40c, g = 5% and Re = 20% gives Po = $2.80
This is an ex div MV. Since they are about to pay a dividend, we need the cum div value which is 2.80 + 0.40 = $3.20
Question 7
Using the dividend growth formula with Do = 23c, g = 3% and Re = 12% gives Po = 2.63
However this would only be the MV if dividend growth starts immediately, It doesn’t start until one year from now, so this is a PV in 1 years time. In addition, in 1 years time there is the dividend of 0.23. So we need to take both and discount for one year at 12%.
2.63 + 0.23 = 2.86. Discount for 1 year at 12% gives $2.56
Thanks a lot sir. Is there any way that I can copy straight from the question,as I couldn’t see a way to copy the question.So, i’m typing it manually and it’s consuming quite sometime. Hope you can advice me on this.
Thanks a lot sir.
Regards,
SarasHi sir,
I tried print screen earlier and i tried again, but, i couldn’t paste it in here.
Any idea what i can do sir?Thanks.
Regards,
SarasOther people have managed it (although I do not know how).
The alternative is to type it – none of the questions are very long.but I think that in Q4 you should not ignore the tax rate because the debt enjoys the free of tax. so the cost of debt must be 9.3%*(1-25%)=6.98%
No – you are wrong.
It is the company which gets the benefit of tax relief.
It is not relevant for the investors.
You need to watch the free lectures on this – our lectures are a complete course and cover everything needed to pass the exam well.
- You must be logged in to reply to this topic.