BAO 1101 Study Guide - Quiz Guide: Debenture, Unsecured Debt, Secured Loan

Play Money Paper (1–2 pages)

Pretend that you have $10,000 to invest for four weeks. You are to "in

Write a report on

1. why you selected the investments you did

2. whether any noteworthy company results, news events, or economic events impacted your investments during this period (show your gains or losses for the period)

3. how your investments' performance compared with the performance of the S&P 500 index during this period

4. your tracking of the following three stock market indexes:

· Dow Jones Industrial Average

· S&P 500 stock index

· Russell 2000 index for small caps

The play money paper is worth 10 percent of your final grade.

vest" this money in stocks or mutual funds and to track your investments on a weekly basis for four weeks (see schedule for due date). Pick five different stocks or funds to follow.

QUESTION 4 [Total 15 marks]

Chico Scroll Limited is a medium sized Australian manufacturing company whose shareholders cannot benefit from imputation credits. Its current capital structure comprises 100 million shares currently trading at $3.80 each, and $100 million face value (there are 1 million bonds on issue, each with a face value of $100) of 5 year bonds with yearly coupons payable at an interest rate of 10% p.a. The bonds are currently trading at a yield of 7.17% p.a. As the finance manager for the Chico Scroll Company you have to approve all new projects.

Recently the marketing department presented a proposal for a major new advertising campaign. It believes that a promotional campaign comprising print and TV advertising in the 2 weeks before Christmas 2004 costing $5m will yield increased sales over the next three years, translating into after-tax cash inflows of:

Year 1 $3,600,000

Year 2 $2,200,000

Year 3 $1,400,000

The finance manager has gathered the following financial information:

 The current yield on 5 year government bonds is 5% p.a.

 The historical return on the ASX sharemarket index has been 15% p.a.

 Shares in Chico Scroll Limited have a beta of 1.4

 The company pays tax at the rate of 30%

 The company is able to raise funds through the placement of shares and bonds at current market values.

(a) Calculate the weighted average cost of capital (WACC) for the project and then calculate the net present value (NPV) to determine whether the company should accept or reject this project. (12 marks)

(b) How confident are you that your decision about the project is correct? Briefly detail which components of your evaluation you think may warrant further investigation and why.

(3 marks)

Point and figure charts with X/Os are used in ____________________________.

_________ is the rate of return for holding a bond purchased at current market price if held to maturity?

ADRs stand for______________ ______________ ______________?

The two filings that all public companies must make each year and each quarter are the_______ and __________.

The five determinates of an options value are ____, _____, _____, _____, ______.

Less required margin to buy a stock means more________ and _______ return on equity.

Stocks are valued by discounting all future _____________.

As a relative measure of price sensitivity, or the change in the change of the price, only __________________ securities have this asymmetric characteristic.

The two keys in valuing bonds are ____________ and __________ factor.

Short sales increasing is a _______________ indicator.

How many stocks are in the Dow jones industrial___________?

Selective memory describes________________?

Following a trend and others in financial decision making is behavior characteristic of __________ mentality.