Homework Answers
Netural Asset meaning - When Return on Capital - Cost of Capital is NIL
Value Creator - When the Return on Capital - Cost of Capital is Positive
Wasting Asset - When the Return on Capital - Cost of Capital is negative
Company X :
Neutral Asset
Company Y :
Wasting asset
Company Z :
Value Creator
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Question 5 (9 marks) Enterprise Value Cash Return on Capital Cost of Capital Trades in Company...
2. (20 Marks) China Holdings (CH) has an capitalization of $10.8 billion, and an enterprise value...
2. (20 Marks) China Holdings (CH) has an capitalization of $10.8 billion, and an enterprise value of $14.4 billion. In addition, CH has a debt cost of capital of 6.1 % and its marginal tax rate is 35% equity cost of capital of 10 % , a market a. (5 marks) Briefly explain the difference between a company's WACC and its expected return on equity. Give an example of where you would use a company's WACC to discount future cash...
You have been appointed as a financial consultant cost of capital of the company, (25 Marks)...
You have been appointed as a financial consultant cost of capital of the company, (25 Marks) the directors of ABC Limited. They require you to calculate the The following information is available available on the capital structure of the company 1 500 000 Ordinary shares, with a market price and the return on the market is 15%. price of R3 per share. The beta of the company is 1.8, a risk-free rate of 1 000 000 12%, R1 Preference share...
QUESTION 4 Assume a firm has a cost of capital of 9% and the following cash...
QUESTION 4 Assume a firm has a cost of capital of 9% and the following cash flows. Compute the NPV of the project. Reminder, keep the negative if you answer comes negative since that indicates the project is unprofitable. Year Cash Flow -60 30 20 50 10 QUESTION 5 If the tax rate is 40%, what are the net proceeds from selling an asset for $90,000? Assume the asset originally had a book value of $30,000.
TIME: 3 HOURS INSTRUCTIONS: (100 MARKS) Answer ALL questions in the answer booklet (25 MARKS) QUESTION...
TIME: 3 HOURS INSTRUCTIONS: (100 MARKS) Answer ALL questions in the answer booklet (25 MARKS) QUESTION 1 A Combi Bhd is considering purchasing a machine that would cost RM201,600 and has a useful life of 9 years. The machine would reduce cash operating costs by RM37,334 per annum. The machine would have a salvage value of RM30,240 at the end of the project. Required: a) Compute the payback period for the machine (3 marks) b) Compute the simple rate of...
TIME: 3 HOURS INSTRUCTIONS: (100 MARKS) Answer ALL questions in the answer booklet (25 MARKS) QUESTION...
TIME: 3 HOURS INSTRUCTIONS: (100 MARKS) Answer ALL questions in the answer booklet (25 MARKS) QUESTION 1 A Combi Bhd is considering purchasing a machine that would cost RM201,600 and has a useful life of 9 years. The machine would reduce cash operating costs by RM37,334 per annum. The machine would have a salvage value of RM30,240 at the end of the project. Required: a) Compute the payback period for the machine (3 marks) b) Compute the simple rate of...
QUESTION 5 (10 marks) Balance sheet information for Mahala Company is as follows 2013 2014 Current...
QUESTION 5 (10 marks) Balance sheet information for Mahala Company is as follows 2013 2014 Current assets Longterm liabilities Intangible assets Longterm investments Property, plant and equipment (net) Current liabilities Total assets Retained earnings Total liabilities Contributed capital Total shareholders' equity Total liabilities and shareholders' equity (a) (b) 10 400 19 200 85 700 14 500 142 200 56 900 50 300 25 000 34 900 9 200 (f) 92 800 12 300 (9) 67 000 (c) (d) (e) 149...
Question 9 (5 points) On August 1, 2018, Dorchester Company entered into a capital lease, and...
Question 9 (5 points) On August 1, 2018, Dorchester Company entered into a capital lease, and correctly recorded the leased asset, and related obligation at $100,000. The annual interest rate implicit in the lease was 9%, and the first lease payment of $1,600 is due at the end of each month of the lease. Use this information to prepare the General Journal entry (without explanation) for the August 31, 2018 monthly lease payment. If no entry is required then write...
Question 1 (1 point) Company A has an internal cost of capital of 7% annually. It...
Question 1 (1 point) Company A has an internal cost of capital of 7% annually. It is evaluating its investment options against its internal costs and has identified three potential investments: Investment A: Bond with annual returns of 8% Investment B: Bond with annual returns of 4% Investment C: Bond with annual returns of 12% Which of the above investments should the company consider taking on given its internal cost of capital? O A only C only A and C...
Question 4 (20 marks) T&A is one of the leading companies in fashion and design. The...
Question 4 (20 marks)
T&A is one of the leading companies in fashion and design.
The company has annual revenue of $2 billion and 12,000 employees.
Currently, T&A’s information systems handle hundreds of
thousands of transactions each day and they could no longer keep
pace with the company's growth. For many years the company has
relied on more than five information systems, all of which are
outdated. Since these information systems are not fully integrated,
the finance staff need a...
Question 1 (15 marks) Your company poloy to invest sn assets with a marmun payback 012...
Question 1 (15 marks) Your company poloy to invest sn assets with a marmun payback 012 years Tho company poley aiso makes provision to use the Net Present Value (NPV) as another method to salech proyects Only 5 nvestment with a postve NPV will be seleoted You heve been suppled wth the followng data regarding two mutualy oxclusve investment opportunses Project Alpha Project Beta inhal Cash Expenditure (50,0001 (50,000) Net Cash Flow Year 1 25,000 10,000 Year 2 10,000 20,000...
2. (20 Marks) China Holdings (CH) has an capitalization of $10.8 billion, and an enterprise value of $14.4 billion. In addition, CH has a debt cost of capital of 6.1 % and its marginal tax rate is 35% equity cost of capital of 10 % , a market a. (5 marks) Briefly explain the difference between a company's WACC and its expected return on equity. Give an example of where you would use a company's WACC to discount future cash...
You have been appointed as a financial consultant cost of capital of the company, (25 Marks) the directors of ABC Limited. They require you to calculate the The following information is available available on the capital structure of the company 1 500 000 Ordinary shares, with a market price and the return on the market is 15%. price of R3 per share. The beta of the company is 1.8, a risk-free rate of 1 000 000 12%, R1 Preference share...
QUESTION 4 Assume a firm has a cost of capital of 9% and the following cash flows. Compute the NPV of the project. Reminder, keep the negative if you answer comes negative since that indicates the project is unprofitable. Year Cash Flow -60 30 20 50 10 QUESTION 5 If the tax rate is 40%, what are the net proceeds from selling an asset for $90,000? Assume the asset originally had a book value of $30,000.
TIME: 3 HOURS INSTRUCTIONS: (100 MARKS) Answer ALL questions in the answer booklet (25 MARKS) QUESTION 1 A Combi Bhd is considering purchasing a machine that would cost RM201,600 and has a useful life of 9 years. The machine would reduce cash operating costs by RM37,334 per annum. The machine would have a salvage value of RM30,240 at the end of the project. Required: a) Compute the payback period for the machine (3 marks) b) Compute the simple rate of...
TIME: 3 HOURS INSTRUCTIONS: (100 MARKS) Answer ALL questions in the answer booklet (25 MARKS) QUESTION 1 A Combi Bhd is considering purchasing a machine that would cost RM201,600 and has a useful life of 9 years. The machine would reduce cash operating costs by RM37,334 per annum. The machine would have a salvage value of RM30,240 at the end of the project. Required: a) Compute the payback period for the machine (3 marks) b) Compute the simple rate of...
QUESTION 5 (10 marks) Balance sheet information for Mahala Company is as follows 2013 2014 Current assets Longterm liabilities Intangible assets Longterm investments Property, plant and equipment (net) Current liabilities Total assets Retained earnings Total liabilities Contributed capital Total shareholders' equity Total liabilities and shareholders' equity (a) (b) 10 400 19 200 85 700 14 500 142 200 56 900 50 300 25 000 34 900 9 200 (f) 92 800 12 300 (9) 67 000 (c) (d) (e) 149...
Question 9 (5 points) On August 1, 2018, Dorchester Company entered into a capital lease, and correctly recorded the leased asset, and related obligation at $100,000. The annual interest rate implicit in the lease was 9%, and the first lease payment of $1,600 is due at the end of each month of the lease. Use this information to prepare the General Journal entry (without explanation) for the August 31, 2018 monthly lease payment. If no entry is required then write...
Question 1 (1 point) Company A has an internal cost of capital of 7% annually. It is evaluating its investment options against its internal costs and has identified three potential investments: Investment A: Bond with annual returns of 8% Investment B: Bond with annual returns of 4% Investment C: Bond with annual returns of 12% Which of the above investments should the company consider taking on given its internal cost of capital? O A only C only A and C...
Question 4 (20 marks)
T&A is one of the leading companies in fashion and design.
The company has annual revenue of $2 billion and 12,000 employees.
Currently, T&A’s information systems handle hundreds of
thousands of transactions each day and they could no longer keep
pace with the company's growth. For many years the company has
relied on more than five information systems, all of which are
outdated. Since these information systems are not fully integrated,
the finance staff need a...
Question 1 (15 marks) Your company poloy to invest sn assets with a marmun payback 012 years Tho company poley aiso makes provision to use the Net Present Value (NPV) as another method to salech proyects Only 5 nvestment with a postve NPV will be seleoted You heve been suppled wth the followng data regarding two mutualy oxclusve investment opportunses Project Alpha Project Beta inhal Cash Expenditure (50,0001 (50,000) Net Cash Flow Year 1 25,000 10,000 Year 2 10,000 20,000...
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