Finance Discipline Group
UTS Business School
25503 Investment Analysis
Tutorial 11
1. (a) If markets are efficient, what should be the correlation coefficient between
stock returns for two non-overlapping time periods?
(b) A successful firm like Microsoft

Lecture 10
Optimal payout policy and valuation
Chapter 16
Learning Objectives
Discuss the payout controversy of cash
versus repurchases
Examine how the decision to pay a dividend
or repurchase shares affects share value
Discuss the life cycle of payout
Di

Lecture 9
How Do Firms Decide on the Payout
Chapter 16
Learning Objectives
Look at how companies decide on the
amount and the form of the payout
Examine what the research on company
payouts has found
Show how both dividends and share
repurchases provide i

Finance Discipline Group
UTS Business School
25503 Investment Analysis
Tutorial 9
Note that in all the questions that follow, by the yield of a bond, we mean its yield-tomaturity (YTM).
1. An 8% semi-annual coupon paying bond with a face value of $100 and

Finance Discipline Group
UTS Business School
25503 Investment Analysis
Tutorial 8
1. (a) What are the basic assumptions behind the APT?
(b) Why is it necessary that the relationship between the expected return on a
stock and its factor loadings be linear

Finance Discipline Group
UTS Business School
25503 Investment Analysis
Tutorial 5
1. The following questions are designed to introduce you to using the Excel Solver
add-in, please answer these questions using this functionality.
Note: If the Solver add-in

Lecture 6
Estimating the firms cost of capital, WACC
Chapter 19
Learning objectives
Explain the after-tax weighted average cost of
capital, WACC
Use the WACC to value a project or business
How to adjust WACC when business risk or
capital structure changes

CHAPTER 18
How Much Should a Corporation Borrow?
2.
a.
b.
PV tax shield = tax rate x debt = TcD = 0.40 x $40 = $16.
The tax advantage can be found by multiplying the amount borrowed by
the tax rate: Tc x 20 = $8.
1 Tp
Relative advantage of debt = 1 T 1 T

Lecture 2
Evaluating and mitigating the risks of a project, Real
Options
Chapter 10
Learning Objectives
Show how to use sensitivity analysis, break-
even analysis and Monte Carlo simulation to
identify crucial assumptions in investment
proposals and to ex

Lecture 3
Competition and profitability
Chapter 11
Learning Objectives
1. Use market values when available to
avoid adding forecast errors to discounted
cash flow (DCF) analysis
2. Understand economic rents and
competitive advantage which underlie all
pos

Object1
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Tutorial 4
Performance measurement and
management compensation
Problem 12.3 Monitoring
Monitoring alone can never completely eliminate
agency costs in capital investment. Briefly explain why.
Monitoring is costly and encounters diminishing
returns.
Also

Tutorial 3
Competition and profitability
Problem Q11.2 Equilibrium prices
Demand for concave utility meters is expanding rapidly, but
the industry is highly competitive. A utility meter plant costs
$50 million to set up, and it has an annual capacity of
5

Lecture 7
Does Debt Policy Matter
Chapter 17
Learning Objectives
Understand the effect of financial
leverage in a perfect capital market
The law of conservation of value
Examine the arguments of traditional
position on weighted average cost of
capital
Dev

Lecture 5
The Cost of Capital of a Project
Chapter 9
Learning objectives
Define project cost of capital
Show when to use company cost of capital
Discuss the cost of equity and its estimation
problems
Discuss how to set discount rates when you do
not have

Lecture 8
Optimal Financing Policy
Chapter 18
Learning Objectives
Combine MMs insights with the effects of
taxes, costs of financial distress and other
complications to understand why debt
policy does matter in well-functioning
capital markets
Investigate

CHAPTER 16
Payout Policy
5.
Rational Demiconductor now has $2 million in cash and a higher market
capitalization. Each of its shares is now worth $12 and the balance sheet looks as
follows:
Rational Demiconductor Balance Sheet
Market Values, in $ Millions

Lecture 1
Estimating the cash flows and the NPV of a
project
Chapter 6
Learning Objectives
Wise investment decisions are based on the NPV
rule
Determine what cash flows should be discounted
Derive the after-tax net cash flow in each period
How to choose b