1. TVM and bond valuation questions (1 mark each): a. Your case company (ADH)wants to purchase an asset. To finance this asset, they approached their bank. The bank has offered a fixed rate of 6% APR, compounded monthly, with your case company to make monthly payments of the amount shown in Table 1 (page 4 of this document) at the end of each month for 5 years. What amount is your case company borrowing? b. Your case company has annual revenue as shown in Table 1. Assume this revenue will grow continuously at the annual rate shown in Table 1. Estimate annual revenue in 5 years. c. Your case company needs to borrow funds and has several options available to it, Loans A, B and C. The interest rates (APR) for these options are given in Table 1. What is the EAR of the loan option the company should choose? d. Your case company is buying new property for the amount given in Table 1. To finance this, the companys bank has offered an amortised loan at 4.2% APR, semi-annual compounding, with 20 years of semi-annual payments. What semi-annual payment will the company have to make on this loan? Assume that the entire property cost is financed and that payments are made at the end of each period. e. Your case company has an issue of $1,000 par value annual coupon bonds with 6 years remaining until maturity. The annual coupon rate is given in Table 1, along with the current price of the bonds. What is the yield to maturity on the bonds? f. Your company has an issue of $100 par value bonds that offer a 5% coupon rate paid semi-annually. The bonds have 4 years remaining until maturity. The markets required return on these bonds is given in Table 1. What is the market price of the bonds?

ADH ONLY

Table 1: Case company data (hypothetical except where noted) Beacon Lighting (BLX) Super Retail (SUL) $891.00 $11,500.00 $247.70 $2,711.40 9.90% 5.30% 5.45%, monthly 6.00%, semi- annually Harvey Breville Adairs Norman Nick Scali (BRG) (ADH) (HVN) (NCK) Payment per $4,359.00 $2,050.00 $15,897.00 $536.00 month Annual total revenue $760.00 $344.40 $2,234.10 $268.00 ($millions) Annual growth in total 10.70% 15.50% 8.10% 12.40% revenue Loan A (APR, 3.02%, 4.26%, 3.93%, 2.48%, compounding semi- semi- monthly quarterly frequency) annually annually Loan B 4.00%, (APR, 2.85%, 2.45%, 4.25%, semi- compounding monthly daily3 quarterly annually frequency) Loan C(APR, 2.52%, 3.91%, 2.95%, 4.24%, compounding semi- daily quarterly daily frequency) annually Property cost $1,540,000 $2,910,000 $9,950,000 $760,000 6 year bond annual coupon 5.15% 4.35% 3.95% 4.90% rate 6 year bond $1,111.50 $956.60 $1050.50 $980.95 current price 4 year bond required rate of 3.40% 4.90% 4.80% 4.10% return 1 Data from S&P Capital iQ for the company's most recent financial year. 2 Most recent 5 year historical CAGR from S&P Capital IQ 3 Assume a 365-day year 5.50%, semi- annually 5.95%, monthly 5.40%, daily 5.97% quarterly $840,000 $1,650,000 5.85% 4.55% $922.00 $1,077.00 5.80% 3.90%