RISK AND RETURN The Manager of Nadi Fashion was assessing the performance and the risk of the
Question:
RISK AND RETURN
The Manager of Nadi Fashion was assessing the performance and the risk of the firm relative to its main competitor. The accountant calculated the annual historical returns and provided the following information:
Annual Returns | ||
Year | Nadi Fashion | Competitor |
1 | 0.013 | -0.013 |
2 | 0.066 | 0.051 |
3 | 0.042 | 0.082 |
4 | -0.008 | -0.069 |
5 | 0.057 | 0.067 |
A. Calculate the standard deviation for each of the shares.
B. Which firm has a higher level of risk and why?
VALUATION OF BONDS AND SHARES
PART A
You are the Manager Finance of Vito Company in Fiji. Your Company is considering raising debt finance by issuing ten year bonds with an aggregate face value of $50 million and an annual coupon, paid every six months of 9.6% per annum. The bonds can be issued at face value and the issue costs are 2.5% of the gross proceeds of the issue and the tax rate applicable is 30%.
Identify and determine the following in order to calculate the before tax cost of bonds:
A. Number of coupon payments
B. Net proceeds
C. Coupon payment
D. Redemption value
E. Final payment and Total Payment
PART B
1. Richardson Pubic Company has recently issued bonds to the Swaziland Market. One of the potential investors approached you, since you are a finance student asks for your help in calculating the investment worth. You have been provided with the investment information with the following cash flows:
Year Ended | Cash Flows in Dollars |
1 | 50 |
2 | 80 |
3 | 300 |
1. If the company offers a discount rate of 7% p.a., how much is this investment worth to you?
2. Hakka Ltd zero coupon bonds have a face value of $100,000 and 5 years to maturity. Your nominal required return is 10%p.a, compounded semi-annually.
3. What is the intrinsic value of the bond?
College Accounting A Contemporary Approach
ISBN: 978-0077639730
3rd edition
Authors: David Haddock, John Price, Michael Farina