CTM Tutorial 2.docx

# Alternatively it can leased for 5 lease rentals of rm

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of 40, 000 after 5 years. Alternatively, It can leased for 5 lease rentals of RM 14,000 per annum payable annually in arrears, and the asset will be handed back to the lessor at the end of this 5 year contract. How should the company finance the assets? Assume that the required rate of return is 105 p.a. Ignore taxation. Buy Lease \$ 81000 immediate payable PMT= 14000 Residual value \$ 40000 N=5 I=10%

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Payable annually in advance= beginning term = extra (1+i) due PVAF= PMT(1-(1/(1+i)^n/i)(1+i) = 14000(1-1(1/1.0)^5)/0.10)(1+0.1) = 53071 year PMT DF DCF 0 14000 1.0000 1 14000 0.9091 12727 2 14000 0.8264 11570 3 14000 0.7513 10518 4 14000 0.6830 9562 5 14000 0.6209 8693 Pv=81000-(40000/(1+0.1)^5) =56163 0 81000 1 2 3 4 5 -40000 0.6209 -24837 Decision lease option will; be selected because it more cheaper than the buy immediately. 5. ABC PL issued 1 for 4 rights shares on 31 May 2015 at an exercise price of \$2. Market value of its shares immediately prior to the right issue was \$3.0 per share. ABC PLC had 1 million shares before the issuance of rights shares. All rights were exercised by shareholders on 31 May 2015. 4 old share \$3 12 1new share \$2 2 TERP= 14 5 share 2.8 Market value = \$3 x 1 million shares = \$30000000 Cash proceed ( new right shares) = 1 million shares x ¼ = 250000 shares 2\$ per share x 250000 shares =\$500000 Old + new shares = 1 million + 250000= 1,250,000 shares TERP =( 3000000+500000 )/ 1,250,000
6. Pharma Duece Corporation, which manufactures biotech drugs, has been experiencing a tendons growth in the price of its common stock. The stock price increased from \$ 4.50 on January 1, 2007 to \$ 18.00 per share on December 31, 2007. Its current net worth statement includes the following Common stock (350,000 shares at \$6 par) 2,100,000 Additional Paid in capital 19,050,000 Retained Earnings 1,350,000 Total Net Worth 22,500,000 (A) What changes would occur in the above statement of net worth after a 2 for 1 split? CS( 360K X 2 @ 6/2)( 700K @\$3) 2,100,000 Additional Paid in capital 19,050,000 Retained Earnings 1,350,000 Total Net Worth 22,500,000 (B) Earnings for 2007 were \$ 1,575,000 what would EPS be before and after the stock split? EPS BEFORE AFTER Net Income 1575000 Net income 1575000 No of share 350000 units No of share 750000 unit \$4.5 \$2.25
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