Finance mid term test

Topics: Bonds, Bond, Zero-coupon bond Pages: 3 (1723 words) Published: November 2, 2014
Please circle the section that you attend Tuesday/ Wednesday Morning/ Wednesday Afternoon/ Thursday Morning/ Thursday Afternoon Name______________________________ Student Number ____________________ There are 3 long questions and 14 short questions totally. Make sure you answer all of them. The last question is on page 11. Formulae FV ( PV(1 ( r ( m)n. FVA ( PMT EMBED Equation.3 . PVA ( PMT EMBED Equation.3 . V0 ( EMBED Equation.3 . Where EMBED Equation.3 is the yield-to-maturity (YTM) of nth year zero-coupon bond and y is YTM. YTM ( EMBED Equation.3 . EMBED Equation.3 Long questions Please show all steps for full credits. 1.HKBU Investment just hires Peter in its IPO division. Peter is asked to calculate the fair value of the stock of Orange Computer Inc. (OCI). OCI specializes in providing stylist digital communication product globally and is experiencing a period of rapid growth. However, other firms are expected to imitate its products in the future. The after-tax free cash flow (but before interest incomes or interest expenses) in t1 is forecast to be 400M. It is expected to grow at an annual rate of 25 for 2 years (from CF1 to CF2 and CF2 to CF3), at 15 in the following year (from CF3 to CF4), and at a constant annual rate of 4 thereafter. OCI has bonds outstanding with par value of 800M, coupon rate of 6, and maturity of 25 years. OCI also holds U.S. government bills worth 300M now. It wants to have 900M shares of stock. Sharon, Peters boss, gives him the following information. The weighted-average cost of capital (WACC) for the whole firm is 14. The yield-to-maturity of the bonds is 10. The risk-free rate is 4. Please help Peter to calculate the intrinsic value of each share of stock at t0. (11 marks) Kevin finds the following information on two stocks in paper industry StockStock priceEarningsgrowth rateEBITDA (M)P/BROEAmanda2.50.11204302.814.4Zoe785.71515121.89.6 Kylie finds additional information StockTotal...