910&11

instead of making twenty payments as originally agreed, you will make only a one-time payment in twenty five years (25). If the interest rate on the loan is 5%, what one-time payment will the bank require you to make so that it is indifferent between the two forms of payment? Question 9 [10 Marks Bay Properties is considering starting a commercial real estate division. It has prepared the following four-year forecast of cash flow from assets (CFFA) for this division: CFFA Year 1 - $159,000 Year 2 $14,000 Year 3 $98,000 Year 4 $221.000 Assume cash flows after year 4 will grow at a steady rate of 3% per year, forever. If the cost of capital for this division is 10% in Year 1-3 and 5% afterward, what is the value today of this division? Question 10 [15 Marks Bilbo plans to save for his retirement in 30 years (t=30) from today, with constant annual saving of $50,000 starting from year 1 (1-1) through year 30 (1=30). Bilbo aims to maintain constant annual expense in the retirement from year 31 (t=37) to year 50 ( 150). The discount rate for Bilbo's entire life is 10%. If Bilbo also wants to leave $10.000.000 to his son Frodo in year 50 (150), what is his maximum annual expense in the retirement? Question 11 [15 Marks Happy Times, Inc., wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe's Party Supply. Happy Times currently has debt outstanding with a market value of $115 million and a YTM of 6 percent. The company's market capitalization is $360 million, and the required return on equity is 11 percent. Joe's currently has debt outstanding with a market value of $45 million. The EBIT for Joe's next year (t = 1) is projected to be S17 million. EBIT is expected to grow at 10 percent per year for the next five years (t = 1 tot = 5) before slowing to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 9 percent, 15 percent, and 8 percent, respectively. Joe's has 2 million shares outstanding and the tax rate for both companies is 20 percent. a) What is the WACC of Happy Times? b) What is the CFFA of Joe's Party Supply in the first year (t = 1)? c) Based on these estimates, what is the maximum share price that Happy Times should be willing to pay for Joe's