CAPITAL BUDGETING
1. A proposed overseas expansion has the following cash flows :
Calculate the payback period, discounted payback, NPV at the required return of 10%. | Notes Ng Hui Ngin (correct) Payback = 3.10 year DPP = 3.38 years NPV = $83.80 / $84.23 | ||||||||||||
2. Dollah are looking at a three year project with a projected net income of RM2,000 in year 1, RM4,000 in year 2, and RM6,000 in year 3. The cost is RM12,000, which will be depreciated straight line to zero over the 3- year life of the project. What is the average accounting return (AAR)? |
1. Joey Corp. will pay a $2.40 dividend in the next 12 months. The required rate of return is 13% and the constant growth rate is 5%. a. Compute the stock price, PO b. If the required rate of return goes up to 15%, and all else remains the same, what will be the stock price? c. Now assume in the next year, expected dividend =$2.70, the required rate of return = 12%, and growth rate = 6%, what is the price of the stock? | |
2. a. A bond issued by Gema Electronic has 16 years to maturity. The bond pays RM78 a year in interest and is selling for RM880. What is the approximate yield to maturity? b. If the firm is in a 30% tax bracket, what is the after tax cost of debt? |
Formula for approximate YTM (Y’)
= annual interest payment (C) + Principal payment (M) – price of bond (Pm)
Number of years to maturity (n)
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0.6 (price of bond) + 0.4 (principal payment)
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