FINAL TEST PART II FINANCIAL MANAGEMENT
Part II is also open book and open note. There are four questions. You can use a calculator. The numerical questions require you to show and explain the rationale for your calculations much like an essay (story) with numbers and equations. Work on the test individually (do not consult with friends, etc.). The honor code is in effect. Do not plagiarize.
Write your answer in a MS word file and submit to Moodle by the deadline. Do not forget to write your full name and student ID.
You are studying abroad at a partner university (or returning from exchange from Japan). You are asked to briefly explain unique features of Japanese capital/securities markets. Summarize your explanation in about 200~300 words (this is just a guideline, it can be a little longer or shorter). Refer to class notes, readings, and class discussion. Include word count. In text citation if appropriate. Do not plagiarize.
Obtain the price for the following straight bond, today (up to two decimal places). This is a five year bond. Coupons are paid once a year. The principal is 100. The coupon rate is 3%. The discount rate is 5%. In your answer provide a brief definition of the bond using the above numerical information and the rationale for your calculations (and equation). Show all work. Do not plagiarize.
The TOPIX index which includes some 1275 companies, stands at about 2,000 in January 2022. Assume the dividend yield is 2.5% for the TOPIX (stocks). Obtain the fair return for the index assuming the Gordon model (DDM with growth) if the growth rate of 0.5%. Assume the dividend amount paid is 70 for TOPIX. Obtain the fair return for the index assuming the Gordon model (DDM with growth) if the growth rate of 0.2%. Show all work and provide an explanation of your calculations. The numerical answer should be in percentage form up to two decimal places. Do not plagiarize.
You are facing a market entry decision to set-up a new factory in a new market (green field investment). You are thinking of investing in a two year project to produce automobile parts. The initial investment (fixed cost) for setting up the production facilities is 250. You forecast cash flows in year one to be 110. The total world market for these automobile parts (sales revenue) is expected to be 6,000 in year two. You expect a market share of 10% in year two. Expected variable cost in year two is 80% of sales. The risk-free rate is 0.5%. The market risk premium is 6%. The riskiness of the project is equivalent to the riskiness of Toyota Motor Company stock. Obtain the beta (5 year – monthly) from the Yahoo USA Finance website <https://finance.yahoo.com> (access the internet with PC, Pad or smartphone) – type in “TM” or “Toyota Motor Company.” Obtain the net present value (NPV) for this project. What is your decision and briefly explain. If you expect to take 20% of the market share in year two what is the NPV and how will this affect your decision. Show all work (you can summarize your explanations in bullet form). The numerical answer should be up to two decimal places. Do not plagiarize.