ACCT2007 - Finance for Business - Accounting & Finance Assignment Help

Assignment Task

QUESTION 1 - Craig wants to invest in four-year bonds that are currently priced at $878.47. These bonds have a coupon rate of 9.46 percent and pay semiannual coupons. What is the current market yield on this bond? 
What economic factors affect the shape of the yield curve? Explain.

Under what economic conditions would investors demand floating rate bonds? 

QUESTION 2
You have forecast the following free cash flows for Green Fields Ltd over the next 5 years:
Year FCF
1 $400,000
2 $500,000
3 $660,000
4 $800,000
5 $850,000
You estimate that from year 6 onwards Green Fields’ growth will be 5% per annum. You also estimate that Green Fields’ WACC is 12%. The company has no excess cash, debt of $2 million, and 1 million shares outstanding. If Green Fields’ current market share price is $8.02, should you buy shares in the company? (7 marks)
Each quarter, Prestige Ltd pays a dividend on its perpetual preference shares. Today the shares are selling at $63.81. If the required rate of return for such shares is 18.0 percent, what is the quarterly dividend paid by this company?

QUESTION 3
What are the advantages and disadvantages of going public?

QUESTION 4
Define and discuss the concept of the optimal capital structure.
Discuss and interpret measures of financial leverage and how they impact shareholder returns and risk.
Distinguish between business and financial risk.

QUESTION 5
Assume that tax on dividends is greater than the tax on capital gains in the hands of shareholders, that there are transaction costs (including issuance costs) and that information asymmetry exists between managers and shareholders. Given these assumptions, firms are behaving irrationally if they continue to pay dividends while also issuing new shares to raise funds for investment opportunities. Explain and critique this statement, referring where relevant to dividend policy theories in your discussion.

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