Level I

Share repurchase - Direct negotiation

I do not get how direct negotiation share repurchase would increase transfer wealth from the average shareholder to the wealthiest shareholder. 

Shouldn’t everyone get richer because a share repurchase would reduce the shares outstanding, thus increasing the stock price and making equity investors richer?

ASSET BETA (MR MEGIAN PLZ)

hello everone

as i learned from curriculum the asset beta = stock beta / 1+ (1-tax%) (D/E%), and the orgin of this formula is Asset bata= debt beta + stock beta  (until here it’s clear)

in the practice problems page 71 book 4 queation #10

they ask if a firm has a stable D/E% of 0.65 and recently they borrowed money and its D/E% increased to 0.75, what’s the effect on the assets beta and stock beta?

FRA question

A manufacturing company reports research costs and a loss on the sale of a business segement on its income statement. Which of these items should be included in operating expense?

A.Neither of these items

B.Only one of these items

C.Both of these items

Corret Answer: C. A loss on the sale of a business segement is extraordinary items and

is not included in operating expense?  Am I wrong ?



Cost of Capital-After tax cost of debt?

Having a hard time understanding the following problem, any help would be much appreciated.

Dot.Com has determined that it could issue $1,000 face value bonds with an 8% Coupon paid semi-annually and a five year-maturity at $900 per bond. If Dot.Com’s marginal tax rate is 38%, its after-tax cost of debt is closest to?

Solution: 

Fv=$1,000

PMT=$40

N=10

PV=-$900

———————–

YTM=5.3149% * 2= 10.62985%………..10.62985%(1-.38)=6.5905%

Reading 30 Example 9

To me it seems like the way the solution goes through the problem still breaks the asset down into coponents. Sure the original 2000 for the original rotating cutter was used in the original calculation, however we’re depreciating the added new cutter separately. Bit confused.

Reading 30 Example 8

I’m having a hard time understanding Q1 for SOONER.

Why are we taking 50% from the Beginning Net Book Value amount for each year? Where does the fact that we have a planned residual value of 100 come in? To me it seems like it’s a coincidence that by the end of year 4, we have 100 residual value remaining.

IFRS - Comprehensive Income

For the fair value of assets, is the change in the fair value of all assets included in the statement of comprehensive income, or just assets that are held for sale?

Pure Play Method

Does anyone know if the pure play method will be covered in the June level 1 exam? I read somewhere on this website it was only for 2009.

NPV vs. IRR on independent projects

I do not get how for independent project,s the NPV and IRR would produce the same rankings. Couldn’t they still produce conflicting rankings even if two projects are indepedendent of eachother? 

Also, what are the main reasons to choose NPV over the IRR method between two projects that are mutually exclusive (or ones I should know for the test)?

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