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FM217 Fundamentals of Finance Assignment Solutions
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Task 3 Final Assessments
Q 1 – Valuing common stock (10%)
ABC Ltd’s ordinary shares expected dividend for next 03 years as follows:
Year 1 K 8
Year 2 K 12
Year 3 K 14
The expected value per ordinary share at the end of the 3rd year would be K 35. What is the current value per share at an 11% discount rate?
Q2 – Valuing common stock (5%)
If ZT Ltd.’s shares pay K 5 dividend and expected to grow constantly at 4% every year, if the discount rate 12%, what is the current value of the share?
Q3 – Valuing common stock & Dividends (10%)
|Company||Dividend Paid||# of ordinary shares||Available earning to shareholders||Current Share value
Using the above information, calculate both companies:
- Dividend per share
- Dividend payout ration
- Dividend yield
Q4 – Investment Project Evaluation Techniques & Capital Budgeting (20%)
A firm with an expected return (discount rate) of 10% is considering the following mutually exclusive projects, cash flow details given below:
- Payback period of each project (Considering the above cashflows)
- NPV of each project
- IRR of each project
- Based on the NPV results, which project would you recommend? Explain.
Q 5 – What is the major difference between the independent project and the mutually exclusive project? (5%)
Q 6 – IBM wants to set up a computer parts factory in the pacific, considering Fiji and PNG as primary locations to finalize. An initial investment in the project will be around 50,000,000$. IBM can enjoy tax holiday for up to 3 years because of the expected number of local employments. (10%)
Country profile of PNG & FIJI As follows:
|Average risk-free rate||6%||7.5%|
|Expected project life span||10 years||12 years|
- If IBM needs an additional 20,000,000$ for PNG investment, list down 03 sources of finance where IBM can raise additional 20Mn
- Calculate the risk-adjusted cost of capital for IBM in each country
- What will be the initial debt -to -equity ratio and an Equity ratio of IBM if PNG investment is considered?