earnings‚ operating profit etc. Equity investors should earn on their capital a return far over risk-free interest rate in order to induce and maintain capital in the company Therefore earnings should always be judged against the capital used to produce these earnings Earnings can be easily increased simultaneously worsening the position of shareholders e.g. if more capital is poured into a company although the return on capital is 5% or less (even lower than long-term government bond) Thus it is
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annuities (a set of fixed payments over a specified length of time) affect the TVM‚ managers need to consider the factors of interest rates‚ opportunity cost‚ future and present values of the money‚ and compounding. In this paper‚ I will explain how annuities affect TVM problems and investment outcomes. I will also address the impact of the following on TVM; interest rates and compounding‚ present value‚ opportunity cost‚ and annuities as well as the Rule of 72. How do annuities affect TVM problems outcomes
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use the VLOOKUP function to search the first column of a range of cells‚ and then return a value from any cell on the same row of the range. For example‚ suppose that you have a list of employees contained in the range A2:C10. The employees’ ID numbers are stored in the first column of the range‚ as shown in the following illustration. If you know the employee’s ID number‚ you can use the VLOOKUP function to return either the department or the name of that employee. To obtain the name of employee
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expected rate of return that investor can possibly earn in other investments with similar risks‚ which is the cost of capital. Under the CAPM‚ the market portfolio is a well-diversified‚ efficient portfolio representing the non-diversifiable risk in the economy. Therefore‚ investments have similar risk if they have the same sensitivity to market risk‚ as measured by their beta with the market portfolio. So‚ the cost of capital of any investment opportunity equals the expected return of available
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that the expected returns on Walmart and Amazon are estimated to be 12% and 10%‚ respectively. You have just calculated extremely reliable estimates of the betas of Walmart and Amazon to be 1.30 and 0.90‚ respectively. Given this data‚ what is a reasonable estimate of the risk-free rate (the return on a long-term government bond)? (No more than two decimals in the percentage return‚ but do not enter the % sign.) First start by writing out the CAPM formula: Stock return=Risk free rate (RFR) + Stock’s
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between these two rates of return? A. risk premium B. geometric return C. arithmetic D. standard deviation E. variance 2. Which one of the following best defines the variance of an investment’s annual returns over a number of years? A. The average squared difference between the arithmetic and the geometric average annual returns. B. The squared summation of the differences between the actual returns and the average geometric return. C. The average difference between the annual returns and the average
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Answers to Warm-Up Exercises E8-1. Total annual return Answer: ($0 $12‚000 $10‚000) $10‚000 $2‚000 $10‚000 20% Logistics‚ Inc. doubled the annual rate of return predicted by the analyst. The negative net income is irrelevant to the problem. E8-2. Expected return Answer: Analyst 1 2 3 4 Total Probability 0.35 0.05 0.20 0.40 1.00 Return 5% 5% 10% 3% Expected return Weighted Value 1.75% 0.25% 2.0% 1.2% 4.70% E8-3. Comparing the risk of two investments Answer: CV1 0.10 0.15 0.6667 CV2 0.05
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1.0 Company Background 1.1 IOI Properties Bhd IOI Properties Berhad‚ an investment holding company‚ engages in the property development and property investment in Malaysia. Its investment properties include commercial/ office buildings‚ and shopping malls. The company also develops residential‚ commercial‚ and industrial properties‚ as well as provides building maintenance and general contract services. In addition‚ IOI Properties Berhad involves in the cultivation of oil palm; and the management
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establishing empirical estimates of such a benchmark market risk premium. As a result‚ the typical advice to practitioners is to estimate the market risk premium based on historical realizations of share and bond returns In this paper‚ we present estimates of shareholder required rates of return and risk premia which are derived using forward-looking analysts’ growth forecasts. We update‚ through 1991‚ earlier work which‚ due to data availability‚ was restricted to the period 1982-1984 (Harris [12]).
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of assets‚ and it uses only common equity capital (zero debt). Its sales for the last year were $620‚000‚ and its net income after taxes was $24‚655. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15%. What profit margin would LeCompte need in order to achieve the 15% ROE‚ holding everything else constant? (Points : 10) 7.57% 7.95% 8.35% 8.76% 9.20% 4. (TCO B) You want to buy a new
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