ACCOUNTING & FINANCIAL ANALYSIS
(a) Abdul Inc.. wants to raise $1 million by issuing six-year zero coupon bonds with a face value of $1,000. Its investment banker states that investors would use an 11.4 percent discount rate to value such bonds. At what price would these bonds sell in the marketplace? How many bonds would the firm have to issue to raise $1 million? Assume semi-annual interest payments. (1 Mark)
Amani owns shares in Honda Inc. Currently, the market price of the stock is $36.34. Management expects dividends to grow at a constant rate of 6 percent for the foreseeable future. Its last dividend was $3.25. Amani required rate of return for such stocks is 16 percent. She wants to find out whether she should sell his shares or add to her holdings.
You are considering three independent projects: A, B, and C. Given the following free cash flow information, calculate the payback period for each. Required rate of return is 9%. (1 Mark)
(b) Investor A holds a 15-year bond, while investor B has an 7-year bond. If interest rate increases by 1 percent, which investor will have the higher interest rate risk? Explain. (0.5 Mark)
(c) Investor A holds a 10-year bond paying 8 percent a year, while investor B also has a 10-year bond that pays a 6 percent coupon. Which investor will have the higher interest rate risk? Explain. (0.5 Mark)
(d) What is the value of this stock? (1 Mark)
(e) Based on your answer above, should Rhea buy additional shares in Ryoko Corp? Why or why not? (0.5 Mark)
(f) If you require a 3-year payback before an investment can be accepted, which project(s) would be accepted? (0.5 Mark)
Accounting and financial analysis
Year
- Project A
- Project B
- Project C
0
- (1,000)
- (9,000)
- (4,000)
1
- 300
- 4,000
- 1,100
2
- 400
- 2,000
- 1,800
3
- 250
- 2,000
- 2,200
4
- 125
- 3,000
- 2,800
5
- 125
- 5,000
- 3,200
Question 1
From SDL find one article in accounting filed and identify (survey research): (3 marks)
- What sort of survey was the author contemplated?
- What sort of respondent he/she targeted?
- How was the sample selected?
Question 2
Explain at least three interview methods. What are the advantages and disadvantages of interview methods?
