Problem 1: As at 1 January 2009, ABC Ltd has the following information:
1. Retained earnings of 200,000
2. Current liabilities of $600,000
3. 50,000 ordinary shares issued at $22 per share
4. 10,000 units of coupon bonds with a coupon rate of 7% per annum paid semi-annually at the sale price of $878 per unit of $1000
The only non-current liabilities of the firm is the debentures (coupon bonds). The firms coupon bonds are currently sold at $912 a unit and have a maturity of 10 years No preference shares have been issued. Ordinary shares have been currently traded at $45 dollars a share and assumed to stay at that price for good. During the fiscal year 2008, the firm has made $110,000 net earnings available for share holders and future net earnings are assumed to stay at the current level for good. The firm adopts a dividend policy to maintain a 32% dividend payout ratio. The tax rate is 30% and classical tax system applies. (Disregard divided imputation system).
a. What is the value of the total assets reported on the balance sheet as at 31 Dec 2008?
b. What are the earnings per share?
c. Calculate the earnings before taxes and the interest (EBIT).
d. What is the firm's debt ratio?
Problem 2. XYZ Ltd is a Sydney based firm which specializes in lending monies to first-time home buyers. The firm charges for the housing loan an interest rate made up of 2% plus the Reserve Bank of Australia (RBA)'s official cash rate. Peter and Mary are customers who borrowed $390,000 for their house on a variable rate 15 year loan with monthly payments 3 years and 3 months ago at 6.2% p.a. There haven't been any interest rates changes since they borrowed the money. Due to the recent economic booms, it is expected that RBA will raise its interest rate by 0.25% next month. Assume today's date is 30/4/2009 and the loan payment is paid at the end of each month.
a. How much do Peter and Mary pay monthly at 6.2% p.a.?
b. How much do they pay monthly if RBA raises the interest rate by 0.25%?
c. XYZ Ltd offers a fixed rate loan at 6.85% for 15 years or less. Switching to a fixed rate loan will attract no additional fees. Peter and Mary expect there will another interest rate rise of 0.25% at the beginning of the year 2010, and another 0.25% interest hike in June 2015 in addition to the interest hike of 0.25% next month. Should the couple switch to the fixed rate loan at 6.85% p.a.?