ABC Private Limited is a growing organization in the industry and is showing progress in terms of capturing new markets in the industry. ABC have observed the interest rate increases from 10% to 12% suddenly. Find the present values of the two bonds given below both before and after the change.Both the bonds have same coupon rate of 11%.                                             

a) Bond 1 has a maturity of 5 years and bond 2 has a maturity of 15 years.   

 

Q No. 2: Being a newly appointed analyst at Credit Suisse, one of your prime role is to facilitate the Global head of valuations in providing detailed and timely analysis. The next meeting is being scheduled for the upcoming Saturday, and you are required to calculate the price of a few stocks and provide their valuations. The information is mentioned below:

a)     The Walgreens Boots alliance Company has recently paid dividend D₀ = $3, and growth is expected to remain 5% throughout. The required rate of return is 10%. Calculate dividend streams for the next 2 years, and their PVs?                                                  (2 Marks)

b)     You have forecasted NIKE dividends of $5, $5.70, and $5.95 over the next three years respectively. After the end of three years the anticipated selling market price of NIKE will be $135. What is NIKE stock price provided a 7% expected rate of return?         (3 Marks)

c)     Merck & Co. is predicted to pay Rs. 1.70 dividend in one year. Further, the market is forecasting a growth in the company's dividend by 3% per year. Given rate of return of 8% in this category, what is stock price of Merck & Co. to be in the third (3) year?        (2 Mark)

Q No. 3:M/s Sons & Sons is considering two projects, A & B, with cash flows as shown below:

  period

 Cash Flow of 

   Project A

 Project B

   0

 -90,000

 -150,000

   1

 30,000

 72,000

   2

 30,000

 35,000

   3

 30,000

 40,000

   4

 30,000

 25,000

  

a. Calculate discounted payback period, net present value and internal rate of return for each project using opportunity cost of capital 13 % & 9% for project A & B respectively.                (2 Marks)

b. Which project(s) should be accepted if :                                                                 (5 Marks)

           (i)        The projects are mutually exclusive and there is no capital constraint.

           (ii)       The projects are independent and there is no capital constraint.

(iii)      The projects are independent and there is a total of $100,000 of financing for capital outlays in the coming period.

c. Why the cost of capital for A might be higher than for B. State possible reason(s) 

(2 Marks)