- This topic has 15 replies, 3 voices, and was last updated 9 years ago by
.
- Posts
1. Revenue – $200,000
Asset turnover – 10 times
Interest payable $1.5m
interest cover ratio 5 timesWhat is the return on capital employed?
2. H co’s share price is $3.50 at the end of 2001 and this includes a capital gain of $0.75 since the beginning of the periold. A dividend of $0.25 has been declared for 2001.
What is the sharegolder return?
1. Capital employed = 200,000/10 = 20,000
Profit before interest = 5 x 1,500,000 = 7,500,000ROCE = 20,000/7,500,000 = 0.27%
(are you sure that you copied the figures correctly, and that the sales were not 200M?)
2. Share price at the start of 2001 = 3.50 – 0.75 = 2.75
Return for the year = (0.25 + 0.75) / 2.75 = 36.36%
Q. A company has 4 million shares in issue with a nominal value of $0,50 per share. A dividends of 24 cents per share has just been paid. Four years ago, the dividend was 20.51 cents per share.
The beta of shares in the company is 0.5. The risk free rate is 3% and the market premium is 8%.
What is the market capitalisation of the company?A. My calcullation:
4V—- 24/20.51 – 1 = 0.033 = 3.3% – g
E = 3 + 0.5 * 8 = 7%P = 0.24*(1+0.033)/0.07-0.033 = $6.8
$6.8 * 4 mio shares = $27,200,000
Is it correct answer?
Thank you in advance.The growth rate is not 3.3%.
(fourth root of 24/20.51) -1 = 0.04 (4%)
Re = 7%
MV = (24(1.04)) / (0.07 – 0.04) = 832 ($8.32)
Market capitalisation = 4M x 8.32 = $33.28M
(to take the 4th root, either use the relevant button on your calculator, or take the square root twice)
Thank you very much. It was mistake to find g. I used the calculator but wrong way. ))
ABC Co has just paid a divident of 24 cents and its current share price one year ago was $3.60. The total shareholder return for the year was 23.3%.
What is the current share price?The return for this year is 23.3% x $3.60 = $0.84
This is this years dividend + this years increase in share price.
So the increase in the share price is 0.84 – 0.24 = $0.60
So the share price now must be $3.60 + $0.60 = $4.20
Thank you very much John. It is really very simple.
If you don’t mind I would like to ask one more question.
Thank you in advance.Q. The share price of CP is $4 per share. They announce a 1 for 5 rights issue at £3.10 per share.
What % of the rights offered to a shareholder does theshareholder need to take up so s to have no net cast flow from the issue?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
Thank you very much for your help!!
Please have a look for another one.
A company has sales 200mio per year. Currently customers take avarage 40 days to pay. The company wants to offer discount 1% for payment within 15 days and expects that 60% of customers will take the discount.
What is effective annual cost of offering the discount?My calculation.
Currently 40 days.New 15days*60%=9days
40days*40%=16days
New total 25 days (less 15 days 40-25)(1/99) * (365/15) *100 = 24%
But right answer is 15.8%. Where is a mistake?
Thank you.The question does not want to know if overall it is a good or a bad idea to offer the discount.
It simply wants the effective cost (so we could compare it with the bank interest to see whether or not it is worth offering).The effective cost is 1/99 = 1.010101% over a period of 25 days (40 – 15).
The effective annual cost is therefore = ((1 + 0.010101)^(365/25) – 1) = 0.158 (or 15.8%)
The level of sales and the fact that we think 60% would take the discount is not relevant.
It is costing 15.8% if we offer the discount (and it is up to the customers as to whether or not they take it – we cannot force them to).(If we are paying 25% overdraft interest then it would therefore be sensible for us to offer the discount (and hope lots of customers would take it). If we were only paying 5% overdraft interest then there would be no sense in offering the discount because we would lose money.)
John, I am sorry but I dont understand.
What does it mean ^ ? The same as * ? Why 1 + and -1? This is discount?
I know a formulae as :
(discount / 100 – discount ) * (365 / current days – new days) *100
You use another one.
- You must be logged in to reply to this topic.