AF 3313 2011-12 Sem 2 Written Assignment Name: Shi Yu ID: 10821504d Tutor: Ho Ming Lawrence FUNG Q1: Definition of efficient market: The efficient market is defined as a market where competition among investors should work to eliminate all positive-NPV trading opportunities or‚ equivalently‚ that securities with equivalent risk should have the same expected return based on their future cash flows‚ given all information that is available to investors. Definition of arbitrage: It is
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Valuation models Discounted cash flow models: Dividend discount Free cash flow to the firm Residual income Multiples-based valuation: Price-earnings Value-EBITDA Value-EBIT Value-Sales Price-Book value Equity valuation In conjunction with the valuation of Coles Group‚ contained in “Excel03 Equity valuation” Real options valuation Equity markets price shares above the present value of expected future cash flows‚ due to the presence of embedded options not captured by DCF analysis Real
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downturn to the already-risky airline industry. However‚ JetBlue was still able to deliver good performance despite the circumstances. It offered the lowest cost per available-seat-mile of any major US airlines. In order to support JetBlue’s growth plan and offset portfolio losses by its venture-capital investors‚ JetBlue wished to raise capital through initial public offering (IPO). The purpose of this report is to determine the appropriate JetBlue’s IPO price given the available data. The report
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Cash-flow-based valuation. With this method‚ the value of a firm’s equity is equal to the net present of future cash flow discounted with the weighted average cost of capital (WACC) minus debt. As we don’t have access to data’s in the case‚ we will presume data’s based on research. Future cash flows: $1850 million (cash flow received in 2004) * 562‚ 5% of average estimated future cash flow per year (based on the evolution of the cash flow between 2002 and 2004) = $10.406 million of future cash flow
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Investment Decision-which real assets the firm should acquire.Choose positive and greatest NPV.value through CF Financing Decision- how to raise money needed for a firm’s investments in real assets. Choose capital structure to minimize cost of capital‚ maximize value of the firm. value through the cost of capital Valuation adjustments- Time‚ Risk‚ Inflation‚ LiquidityTruncated cash flows: (Time) receive $CFt each period until time T. Constant discount rate 10%. Investment of $100 in time 0. CFs of $22 in
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10lakhs‚cost of capital 18% Debt Rs.5lakhs‚cost of debt 13% Calculate the weighted average cost of funds taking market values as weights assuming tax rate as 40%. Answer: We Know that‚ WACC = We Ke + WpKp +Wr Kr + WdKd + WtKt WACC = 0.67*.18+0.33*13(1-.40) =0.146 or 14.6% A calculation of a firm’s cost of capital in which each category of capital is proportionately
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Course : SNHU INT620 Quiz 2 Students Name: Zhou He 1. In class we discussed why the “Law of One Price” does not work. Name two reasons the law does not work. Because as following : 1.Goods don’t move without costs from country to country 2.Services are not tradable 3.Still subject to the law of supply and demand 2. Provide definitions for the following: a. Transaction exposure Transaction exposure measures changes in the value of outstanding financial obligations incurred to a change
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comfortable with another competitor that shares a geographical location‚ and many times‚ the same markets. Competition is a given concept that each business will become familiar with eventually. Changing the manufacturing process‚ cutting excessive costs‚ and changing the practice of business will benefit an organization to become more competitive within its market. Changing the business plan is a common theme when faced with enormous business challenges. This is one technique that may assist‚ grow
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Question 1 Overall‚ Starbucks’ performance has been mixed over the past six months. On April 13‚ 2012‚ its stock price reached a high of $61.67 per share and closed at $57.37 per share. Since April‚ the price of Starbucks’ stock fell on average in the following closing months of May and June before reaching a low of $43.16 in the opening days of August. The fall was correlated with the release of Starbucks’ third quarter annual report‚ which showed a less-than-expected performance for that quarter;
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Session 1 Topics (Merger & Acquisitions/ Investment Appraisal /WACC) Lecture Question – (Q4) and (Q40) Seminar Question - (Q28) Support Class Question – (Q6) Revision Session 2 Topics (Finance Function / Portfolio Theory / Working capital management) Lecture Question – (Q24) & (Q10) Seminar Question - (Q36) Support Class Question - (Q23) Revision Session 3 Topics (Bond & Equity valuation / Rights Issue) Lecture Question – (Q12) & (Q43) Seminar Question - (Q26)
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