Financial Accounting (ACF2100)

Victoria Chemicals are considering replacing their existing machine with a new, more efficient one. The old machine was purchased 4 years ago for $33,000,000 and had an estimated useful life of 6 years; it can be sold today for $15,000,000. The new machine will cost $50,000,000 but will have a 8 year life and scrap value at the end of the 8 years of $7,000,000. The new machine will require shipping and installation costs of $2,000,000 each. Victoria Chemicals depreciate all assets straight-line over their useful life and pay tax at the company rate of 30%. What is the initial investment at t=0 associated with the incremental decision of selling the old machine and buying the new machine? (a) ($35,000,000) (b) ($39,000,000) (c) ($40,200,000) (d) ($50,000,000) (e) ($54,000,000)

Assume that the current dividend per share (which has been paid) for ACD Ltd is $0.90 and that the required rate of return on these shares is 15% p.a. If the current stock price is $19.80, the expected constant growth rate in dividends implied by this information is closest to: (a) 0.0% (b) 5.0% (c) 7.5% (d) 10.0% (e) 15.0%

Six years ago your friend borrowed $150,000 on an amortizing loan for a ten-year period at an interest rate of 12% p.a. with interest compounded on an annual basis. She has been making regular annual payments on the loan and now wishes to repay in full the amount outstanding on this loan. The total amount she will need to repay is closest to: (a) $73,543 (b) $80,634 (c) $88,058 (d) $95,879 (e) $106,191

Eureka Industries is experiencing a period of rapid growth in its earnings and profitability. Earnings and dividends are expected to grow at a rate of 20% p.a. during the next two years, at 15% p.a. in the third year, and at a constant rate of 8% p.a. thereafter. Eureka’s most recent dividend per share was $1.00, and the required rate of return on the stock is 12% p.a. Meredith Gray, an analyst with USB Financial, has asked you to estimate the price at which Eureka’s stock should be selling for today based on the above information. The estimated price should be closest to: (a) $31.83 (b) $34.04 (c) $35.22 (d) $44.71 (e) $47.23