Author: webuser

China in US Stock Market China Near To Joining Influential

China in US Stock Market

China Near To Joining Influential Stock Exchange
by: Carolyn Cui
Jun 10, 2015

Link:http://www.wsj.com/articles/chinese-stocks-wont-yet-join-mscis-widely-tracked-emerging-markets-index-1433885346?mod=djem_jiewr_IB_domainid

TOPICS: International Stock Market

SUMMARY: Index provider MSCI (Morgan Stanley Capital International) said Tuesday that it would add China’s A-shares, those stocks denominated in yuan and listed in either Shanghai or Shenzhen, to its widely tracked Emerging Markets Index at some point in the future when China resolves certain issues, which center on foreign investors’ capacity to freely buy and sell securities and to complete transactions in a timely manner. This index is tracked by funds with $1.7 trillion in global assets. MSCI’s decision moves China closer to be in the global-investing big leagues, a recognition that the country is a magnet for global capital, following years of overhauls that have vastly expanded foreigners’ capacity to trade its assets and currency. Also, it recognizes Western investors’ calls for greater protections as they approach a market that has boomed in 2015, but whose reputation was tarnished by poor disclosure and other ills. Listing A-shares in the index would also lower financing costs for Chinese companies and bolster global access to one of the fastest-expanding large economies, despite a recent slowdown.

CLASSROOM APPLICATION: The article highlights index provider MSCI’s decision to add China’s A-shares in its widely tracked index in future if certain market issues are addressed. It also discusses the significance of the inclusion of Chinese stocks in the index.

QUESTIONS:
1. (Introductory) What did index provider MSCI determine regarding China’s A-shares?

2. (Advanced) What issues China need to resolve before its A-shares are included in Emerging Markets Index?

3. (Advanced) What is the significance if China’s A-shares are included in Emerging Markets Index?

4. (Introductory) What is the name of MSCI’s widely tracked index?

Consider the following cash flow [-100, + 230, -132]. We want to

Consider the following cash flow [-100, + 230, -132]. We want to decide under what range of discount rate this is an advantageous investment. But noting the change in sign, we conclude IRR is not a suitable instrument. Write the expression for NPV using the unknown r as discount rate. Write this expression as a function of [1/(1+r)]. Show that the expression in (b) as a quadratic equation. Look this up if necessary. Solve the quadratic equation for its two roots. Prepare a table of NPV vs. r for r= 0,10,20,40,100%. Draw the graph of NVP vs. r. Under what range of r values is this an acceptable investment? Noting that NPV increases then declines as r grows from 0 to 40%, determine at what level of r NPV is a maximum (recall that d(NPV)/ds = 0, where NPV is a maximum). If you have sufficient background, solve this using calculus. If not, graphically find the top of the NPV hill (where slope = 0). 
What is the maximum value of NPV? (There is one bonus point for the correct answer using calculus).

You are evaluating a project for Ultimate Inc. The project

You are evaluating a project for Ultimate Inc. The project produces chew-resistant doghouses. You estimate the sales price of these doghouses to be $500 and sales volume to be 2,500 units per year over the project’s three-year life. Variable costs amount to $300 per unit and fixed costs (not including depreciation) are $150,000 per year. The project requires an initial investment of $250,000 and this will be depreciated on a straight-line basis to zero over the three-year project life. There will be an initial net working capital investment of $90,000 (t0) and two further investments of $90,000 at the beginning of each year thereafter. The full amount of working capital will be recovered at the end of the project’s life (i.e., $270,000 at t3). The tax rate is 35% and the required return on the project is 15%. a. What is the EBIT for the project in the first year? b. What is the operating cash flow for the project in year 2? c. Suppose the actual market value of the initial investment at the end of year 3 is $50,000. What is the effect of the $50,000 salvage value on year 2 cash flows? d. What is the NPV of this project?

A firm is considering the purchase of equipment which will cost

A firm is considering the purchase of equipment which will cost $3 million. This equipment will last for 10 years, at the end of which it can be sold for $800,000. The CCA rate for this asset class is 30%, and the firm expects to have other assets in this asset class at the end of year 10. This equipment is expected to increase before-tax operating cash flows by $750,000 per year. However, in order to put the equipment to use, an additional $150,000 will need to be invested in net working capital initially (i.e., at ). The required rate of return is 16% and the firm’s marginal tax rate is 35%.
 a. Should the firm purchase this equipment? b. Suppose that to arrive at the before-tax operating cash flows in part (a), we have used the following estimates:Fixed costs = $120,000Variable costs = 60% of sales What is the Net Present Value of the new equipment if, in the best-case scenario, we estimate that fixed costs could be lower by 20% and sales revenues could be higher by 25%? c. Given the information in (a), and assuming that fixed costs are $120,000 and variables costs are 60% of sales, what is the sales level at which Net Present Value equals zero? (In other words, what is the financial break-even sales level?)