Week 3 CQ's:
5.1a What do we mean by the future value of an investment?
FV refers to the amount of money an investment will grow to over some length of time at some given
interest rate. In other words, FV is the cash value of an investment at some time in
AFIN858
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Week 5
1. You are considering two mutually exclusive projects with the following cash flows. Will
your choice between the two projects differ if the required rate of return is 8% rather than
11%? If so, what should you do?
Select one:
A. ye
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Question text
The One Cafe has an operating cash flow of $78,460, a depreciation expense of
$8,960, and taxes paid of $21,590. What is the amount of the cash flow from
assets? A partial balance sheet is as
AFIN858 2017
Week 2 Q&Ps - Suggested Answers and Solutions
CHAPTER 3
6
Short-term solvency ratios
Current ratio for 200X
= (600 + 1950 + 3135)/(1500 +2271) = 1.51 times
Current ratio for 200X+1 = (1509 + 2064 + 2100)/(1590 + 1929) = 1.61 times
Quick ratio
Growth
Sales
COGS
Taxable Y
Tax
NPAT
Base Year
5250
4200
1050
315
735
Next Year
6172.95
4938.36
1234.59
370.377
864.213
Retained
441
518.5278
1.1758
Assets
3750
3750
4409.25 CL
LT Liab
Equity
4409.25
This proves that 17.58% is the internal growth rate if
AFIN858 2017
Week 2 Q&Ps Suggested Answers and Solutions - Supplement
Q&P 4.17
The EFN could also be worked out as the increase in total assets less the addition to retained
earnings or in formula notation: EFN = A(g)-p(S)R(1+g). Accordingly, EFN = $[(375
AFIN858 2017
Week 1 Q&Ps - Suggested Answers and Solutions
NOTE: Some Questions & Solutions Amended Sat 4 Mar
Always focus on the Learning Objectives of the Problems
CHAPTER 1
4
An argument can be made either way. At the one extreme we could argue that in
Purchase price
$ 42,000
Salvage value $1000 at end of Year 3
Net cash flows
Year 1
$31,000
Year 2
$25,000
Year 3
$20,000
Tax rate is 30%
Depreciation 20% reducing balance
Required rate of return 12%
Initial Cost
Depreciation
Carrying Value
Salvage Value
L
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Question 102 option, hedging _
keithphw $4,431.61
A company runs a number of slaughterhouses which an4_bolt $3,862.43
supply hamburger meat to McDonalds. Th
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A company can invest funds for five years at LIBOR plus 50 Aivan $2,956.43
basis points pa. The five-year swap rate is 4% pa
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Question 250 NPV, Loan, arbitrage table
Your neighbour asks you for a loan of $100 and offers to
pay you back $120 in one year.
You don't actually have any money right no
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The 'futures price' in a futures contract is paid at the start an4_bolt $3,862.43
Question 275 derivative terminology, future
when the futures
AFIN858 2017
Week 4 Q&Ps - Suggested Answers and
Solutions
CHAPTER 6
1
a It is an inverse relationship.
b The longer the time to maturity, the greater the change in bond values for a given
change in interest rates, all else being equal.
c The lower the co
CQ's:8.1;8.3;8.4(a);8.5(a):9.2;9.6.
Q&P's:8.5;8.6;8.7;8.8;8.10;8.13;8.14;8.15.
8.1
a. what is the relevant incremental cash flow for project evaluation?
The difference between a firms cash flows with a project or without the project
b. what is the stand-a
18.1(c) holding all other information, how should the price of a share change
when it goes ex-dividend?
The share price would go down by the after-tax value of the dividend. The
shareholder who bought the share after ex-date would be not entitle to the
di
AFIN858
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Week 7 Risk and return I
1. Select the most correct statement from the following. 'Chartists', also known as 'technical
traders', believe that:
A. markets are weak-form efficient.
B. markets are semi-strong-form efficient.
C. past prices ca
AFIN858
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Week 8 Risk and return II
1. Using the following information and assuming all the bank shares are trading at the same
price, determine which of the following arrangement will reduce the portfolio expected
return?
Asset
Wealth invested
Expec
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Week 5 Capital budgeting I
1. You are considering two mutually exclusive projects with the following cash flows. Will
your choice between the two projects differ if the required rate of return is 8% rather than
11%? If so, what should you d
AFIN858
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Week 6 Capital budgeting II
1. Net working capital:
A. can be ignored in project analysis because any expenditure is normally recouped by the
end of the project.
B. requirements generally, but not always, create a cash inflow at the beginni
Interest rate risk
Interest rate risk is caused by the change of interest rates that impacts on companys
finance such as borrowing costs and interest incomes. The change on market interest rate
cause the fluctuation in Fantastic Holdings Limiteds fair val
Interest rate risk approach
Fantastic Holdings Limited (FHL) Groups risk exposure to interest rate risk is the risk that a
financial instruments fair value will fluctuate as a result of changes in market interest rates.
According to ASX guidelines as well
The group has a foreign currency risk in respect of payables as at 30 June 2015.
Despite of a more proactive approach to risk management in other areas, treasury
operates as a cost centre adopting a conservative policy in respect of importing
goods, such