Question 1
i) Net income = RM750,000 x 40% OCF = RM750,000 + RM200, 000 -
= RM300,000 RM300,000
= RM 750, 000 – RM 300, 000 = RM 650,000
= RM 450, 000
Net cash flow =
ii) Free cash flows refers to cash that the firm is free to distribute to creditors and stockholders because it is not needed for working capital or fixed asset investment. In my opinion, I more prefer to cash flow because it is more difficult to manipulate compare to income statement.
Question 2
b) Du Pont equation for barry
ROE = Profit margin x total asset turnover x equity multiplier
7.6% = 1.7% x 1.7 x 2.62
Industry
9% = 1.2% x 3 x 2.5
c)
Question 4
i) As the number of periods increases, the present value increase. You are receiving more payments and adding to present value. An annuity last for a finite number of years, while perpetuity last forever. There is no future value for a perpetuity because
ii) a) PVA = A × PVIFA (10%, 10 periods)
PVA = $35,000 × 6.145 = $215,075
b) PVA = A × PVIFA (i = 10%, 10 periods)
PVA = $35,000 × 6.145 = $215,075
Now, discount back this value for 2 periods
PV = FV × PVIF (i = 10%, 2 periods) Appendix B
= $215,075 × .826
= $177,652
Question 5
Systematic Risk | Unsystematic Risk |
Risk factors that affect large number of assets | Risk factors that affect a limited number of asset |
Also known as non-diversifiable risk or market risk | Also known as unique risk and asset-specific risk |
Include such things as changes in GDP, inflation and interest rates | Include such things as labor strikes and part shortage |
i)
A circumstance when an investor may ignore the unsystematic risks is when they trust a company and in case if the investor has a relationship with the business and is familiar with the decision making and how the company exercises in regards to morality and legality....