mcq f9

Please do not type in capital letters :-) Question 1: To get the sensitivity you need to divide the NPV of the project by the present values of the cash inflows of 8,000 a year, and express it as a percentage. (The free lecture on investment appraisal under uncertainty explains why) Question 2: You cannot be asked to calculate the redemption yield, and you do not need to here. The interest yield is 6/120 which is 5%. Because the bonds are to be redeemed at less that 120, the redemption yield must be less than 5%. Only one of the choices has the interest yield at 5% and the redemption yield at less than 5%. (The free lecture on this will help!) Question 3: You really should watch the free lectures – they go through the whole syllabus for F9 and the lecture on rights issues goes through an almost identical example to the one above! The ex-rights price is therefore ((5 x $4) + $3.10) / 6 = $3.85 per share. Suppose someone currently owns 10000 shares (any number will do – 10000 is easy!) They are currently worth 10,000 x $4 = $40,000 After the rights issue, they must be worth in total $40,000 and therefore if there is to be no cash effect, their shares must in total be worth $40,000. Since the new MV is $3.85, it means they must now own 40,000/3.85 = 100390 shares – 390 more than before. They were entitled to 1/5 x 10,000 = 2,000 shares. So they must have taken up 390/2,000 = 19.5% of their rights

sir i also have issue solving the first one mentioned here.. can you please give me your figures (without explaining) so i can just match with mine.. where am i going wrong thank you so much

The cost of capital in the first question was given as 10% The present value of $8,000 a year for 5 years is 8,000 x 3.791 = 30,328 The NPV is 30,328 - 25,000 = 5,328 The sensitivity = 5,328 / 30,328 = 17.57% It is negative because it is only a problem if the inflows decrease - not if they increase.