Chancellor Chemicals Ltd Case Study - Capital Gains Yield - Business Assignment Help

Assignment Task :

Question 1
Chancellor Chemicals Ltd has retained earnings available of $1.2 million. The firm plans to make two investments that require financing of $950,000 and $1.75 million, respectively. Chancellor uses a target capital structure with 60% debt and 40% equity. Determine the dividends, if any, can be paid out to shareholders by applying the residual theory and calculate the dividend payout ratio.
 

Question 2
MTB Ltd. is an Australian exporter, sold a special raw material to a manufacturing company based in Switzerland. The sale is denominated in Swiss francs with payment due upon delivery in three (3) months, amount is CHF 200,000.
 

Required:
a. How can MTB Pty Ltd. use the currency options to hedge foreign-currency exposures resulting from international transactions?
b. Describe the key benefit and the key drawback of using currency options rather than future and forwards contracts? 
 

Question 3 
Explain what makes markets efficient? What type of market is considered to exist in Australia and why?
 

Question 4 
Cobalt Industries had sales of 150,000 units at a price of $10 per unit. The Fixed operating costs of $250,000 and variable operating costs of $5 per unit. The company is subject to a tax rate of 30% and has a weighted average cost of capital of 8.5%. Calculate Cobalt’s net operating profits after taxes

Question 5
Suppose a firm’s stock is selling for $7.20. They just paid a $0.70 dividend and dividends are expected to grow at 5% per year.
 

Required:
a. What is the required return?
b. What is the dividend yield? 
c. What is the capital gains yield?

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