2.) Discount Rates for Oil ExplorationYou are a senior manager at an automobile company. In an effort to offer a full menu of auto andgas products, your firm is considering an oil exploration project. The CEO has selected themanager of the company's truck division to oversee the project, and has asked you to evaluatewhether the company should proceed with the exploration or not.To help you evaluate the project, your associate gives you the following information:CompanyEquity BetaGeneral American Oil1.811.29Louisiana Land & ExplorationMesa Petroleum2.361.60Murphy OilNatomas Oil1.841.531.35Oceanic ExplorationSuperior OilD/(D+E)0.030.120.370.270.410.230.16a.) Should you also ask the associate for similar information on car manufacturers? On truckmanufacturers? On automobile companies? On your firm in particular? Why or why not?b.) Based on the information you have available, calculate an appropriate discount rate assumingthat risk free rate is 4% and market return is 7%. Assume that the debt of the companies yourassociate looked at is risk free. Assume that the oil exploration project is 100% equity financed.

An automobile company is assessing an oil exploration project. An appropriate discount rate for the…

Answered: You are a senior manager at an…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Hi there can you please assist on the following question below You are the financilal manager of competitive investment company in south africa. you have been presented with two possible investments: Pink limited and purple limited as shown below. you have been supplied with the following information regarding the two companies Pink Limited Purple Limited Earnings before interest and tax R 3 000 000 R 4 000 000 Long term interestbearing debt R 500 000 R 800 000 Earnings attribute to shareholders R 2 124 000 R2 822 400 Tax rate 28% 28% Share capital R 2 00 000 R 5000 000 Number of ordinary shares issued 200 000 400 000 Number of ordinary shares authorised 1 000 000 500 000 Current market price of the share R 30 R 20 Dividend per share R 5 R 3 As a financial manager you are very concerned about the dividend yiled and dividend payout ratioas these will be your indicator of return on your investments Q.1.1 Calculate the dividend yiled for both companies Q.1.2.…
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QUESTION TWO A. What is a financial market? B. The directors of a company are planning to undertake a rights issue. Describe the factors that should be taken into account in deciding whether to have this issue underwritten instead. C. D Plc is in the process of making a 1 for 4 rights issue. The rights letters have just been sent to shareholders. The company currently has 20m K1 shares in issue and the current market price is K4.50 per share. The rights letter gives shareholders the right to buy their new shares for K3.50 each. D Plc plans to use the cash raised to build a major extension to its factory, thereby doubling production capacity. The finance director has received an angry letter from a shareholder. The shareholder complains that he cannot afford to invest in new shares. He contends that he is likely to suffer a loss because of the fact that the market will be flooded with cheap shares as the issue will almost certainly decrease the value of his holding. Required: I. II.…
1. What is management’s primary goal. Explain. 2. What do investors expect to receive when they buy a share of stock? Do investors know for sure how much they will receive? Explain. 3. Based just on the name, which company would you expect to be riskier - General Foods or South Seas Oil Exploration? Explain. 4. When Boeing decides to invest $5 billion in a new jet airliner, are its managers certain of the project’s effects on Boeing’s future profits and stock price? Explain.
please answer the question according to the conditions shown in pic. below Q:Identify two key financial ratios you would use as a guide (and why) to help you determine which business you would prefer to invest in
Question 3 A venture capital fund is considering investing in a startup that is seeking to raise $1,500,000 in equity capital. The venture had previously raised $250,000 from angel investors and the founder had invested $50,000 of her savings in her venture. At the time this investment was under consideration, the company was projecting to be profitable three years from now. Net income in year three is projected to be $225,000. Because of projected losses in year one and two, cumulative retained earnings entering year three are projected to be negative $120,000. The venture capital firm will nbt invest unless the projected return on equity in year three is at least 30% If you were employed by the venture capital fund, based on this information alone, would you recommend that the $1,500,000 investment be made? Yes, the projected return on equity in year three is greater than 30% No, the projected return on equity in year three is less than 30%
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ROUND ALL ANSWERS TO TWO (2) DECIMAL PLACES You have recently been appointed as the financial manager of MiniStudy Ltd, a company listed on the Johannesburg Stock Exchange. You have been approached by the Board of Directors to assess a new capital project the company wishes to invest them. You have determined that the first step in this process would be to calculate MiniStudy Ltd's cost of capital. After a long meeting held with your finance team, you have determined the following: Capital structure MiniStudy Ltd has a target capital structure of 35% interest-bearing debt, 15% preference shares and the balance comprise equity. The current tax rate applicable to the company is 28%. Interest-bearing debt Interest-bearing debt consists of redeemable debentures. There are 150 000 debentures with a par value of R50 each. These debentures will mature in 10 years' time at a premium of 10%. The coupon rate of these debentures is 8% per annum while the pre-tax current yield on similar…
Based on the historical company financial information and business description is given below answer the following: (a) Identify three key ratios you would use as a guide (and why) to help you determine which business you would prefer to invest in?(b) What further information might you consider or need before making a final investment decision?
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