1)
A) Please list your expected return for the following investment in different scenarios;
B) Please list the risks and discuss the impacts;
C) Why you go ahead with that investment by listing your recommendations;
Case Scenario: If you are a CFO who is responsible for your companys investment. World leading C Bank relationship manager came to you and offered you the following investment product; some key features are illustrated in below:
Auto callable Contingent Coupon Equity Linked Securities Linked to an Equally Weighted Basket of Four Underlying Due 31March2025;
Issuer: C Bank Group Global Markets Holding Inc.
Guarantee: All payments due on the securities are fully and unconditionally guaranteed by C Bank Group which is AAA Grade rating;
Underlying Company Stock
Weight
Advanced Micro Devices, Inc
25%
Square, Inc
25%
Tesla, Inc
25%
Zoom Video Communications, Inc
25%
Stated Principal amount: $1,000 per security;
Issue Date: 31March2021
Pricing Date: 31March2021
Valuation dates: the 5th Business day of each calendar month
Maturity date: 31March2025 unless earlier redeemed
Coupon Payment: Monthly Dividend at 0.8333% p.m. roughly 10% unless the market value of any underlying company stock is not below 60% of the initial pricing as of 31March2021;
Payment at Maturity: If the securities are not automatically redeemed prior to maturity, callable when any of underlying stock price is below 60% of the initial pricing; If that is the case, your principal payment will be 60% of the initial purchase price + any of previous paid coupon;
Otherwise, your return will be the ending sales price previous coupon payment- management fee as of 2%; However, capped at 20% capital gain;
2) Please find the below financial information, and calculate the WACC for the XYZ Property Development Company; And explain why is useful to calculate the WACC for XYZ property company itself from Financial Management perspective?
XYZ Property Development Company has 9.6 million shares of common stock outstanding, 400,000 shares of 6 percent $100 par value preferred stock outstanding, and 165,000 7.50 percent semi-annual bonds outstanding, par value $1,000 each. The common stock currently sells for $44 per share and has a beta of 1.30, the preferred stock currently sells for $93 per share, and the bonds have 20 years to maturity and sell for 115 percent of par. The market risk premium is 8.4 percent, T-bills are yielding 4 percent, and the companys tax rate is 40 percent.
