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Use the information below to answer questions Q11 and Q12. A firm's next financial year will start on 31 December 2020. The firm expects to pay a...
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Use the information below to answer questions Q11 and Q12. 

A firm's next financial year will start on 31 December 2020. The firm expects to pay a dividend of $1.80 at the end of that financial year. The dividends are expected to grow at 4.20% indefinitely thereafter and beta is 1.50. Athenia Ngcobo determines that the risk premium is 3.50% and that the return on publicly traded debt of the firm is 9.00%, while the liquidity premium and size premium are 0.20% and 1.60% respectively.

Q11. Calculate the value of the firm by using the bond yield risk premium on 31 December 2019.

1. $17.91

2. $21.69

3. $22.60

Q12. Assume the market price of the firm is $25.04 on 31 December 2019. The share is ...

1. overpriced.

2. fairly priced.

3. underpriced.

Q13. A company has a book value of $80 per share. All its earnings are paid out as dividends and the value of the perpetuity is $56. The required rate of return on equity is 5.50%. Calculate the value of the dividend an investor will receive for this perpetuity.

1. $3.08

2. $4.40

3. $6.10

Q14. Sahara Limited has a retention ratio of 44% and has the following information:

Table 4.JPG

Use the DuPont analysis to calculate Sahara's sustainable growth.

1. 12.33%

2. 15.69%

3. 28.02%

Q15. The capital structure of Zizo Limited is constant. Zizo Limited finances its increases in fixed assets and working capital with 40% equity and the rest with debt. The current market value of Zizo Limited's outstanding debt is $7 250 million and interest expense is charged at 10.40%. Zizo Limited has 3 000 million shares outstanding. The corporate tax rate is 30%, cost of equity is 16%, net income is $590 million, depreciation is $98 million, fixed capital expenditure is $140 million and increase in working capital is $75 million. Calculate the net borrowing of Zizo Limited.

1. $46.80 million

2. $70.20 million

3. $187.80 million

Q16. Excess risk adjusted return is also called:

1. beta

2. theta

3. alpha

Table 4.JPG

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Subject: Business, Finance

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