Hi Akshya, plz find the attachments and let me know if you can help me in completing the finance problems in worh or excel formats.

FINA 6301 HW Problems - 10TH Edition Chapters 10 and 11 - Session 8 In Problem 10-7 above, calculate the covariance and the correlation coefficient as well. In Problem 11-5 above, calculate the covariance and the correlation coefficient as well. FINA 6301 HW Problems - 10TH Edition Chapter 11 - Session 9 FINA 6301 HW Problems - 10TH Edition Chapter 13 - Session 10 Use the information in Problem 8 below for Problem 9 above. FINA 6301 HW Problems - 10TH Edition Chapter 16 - Session 11 FINA 6301 HW Problems - 10TH Edition Chapter 2 - Session 2 Assume further that the firm paid $2,000 dividends in 2012. Calculate the net amount of stock issue in 2012 in part d). FINA 6301 HW Problems - 10TH Edition Chapter 4 - Session 3 FINA 6301 HW Problems - 10TH Edition Chapter 5 - Session 4 In Problem 1 - Part a, calculate the PB periods for Projects A and B, and compared them. Problem 15 is continued on the next page. In Problem 15 - Part c), consider combining projects within the budget limit. For example, consider {CDMA + G4}. FINA 6301 HW Problems - 10TH Edition Chapter 6 - Session 5 FINA 6301 HW Problems - 10TH Edition Chapter 7 - Session 7 In Part b) of problem 13, choose another level of fixed costs of $620,000 to do the sensitivity analysis. See the HW hints posted for more information. a Owner's Equity: Total Assets - Total Liabilities For 2011, Total Assets = Current Assets + Net Fixed Assets = 936 + 4176 i.e. 5,112.00 Total Liabilities = Current Liabilities + Long term Debt = 382 + 2160 i.e. 2,542.00 Therefore, Owner's Equity = 5112 - 2542 Owner's Equity: 2,570.00 For 2012, Total Assets = Current Assets + Net Fixed Assets = 1015 + 4896 i.e. 5,911.00 Total Liabilities = Current Liabilities + Long term Debt = 416 + 2477 i.e. 2,893.00 Therefore, Owner's Equity = 5911 - 2893 Owner's Equity: 3,018.00 b The Change in Net Working Capital was: Change in NWC = NWCend - NWCbeg Change in NWC = (CAend - Clend) - (CAbeg - Clbeg) Change in NWC = (1015 - 416) - (936 - 382) Change in NWC: 45 c To find the amount of Fixed assets company sold , we need to find the net capital spending, The net capital Spending was: Net Capital Spending = NFAend - NFAbeg + Depreciation Net Capital Spending = 4896 - 4176 + 1150 i.e. 1,870.00 To find the fixed asset sold, we can also calculate net capital spending as : Net capital Spending = Fixed Asset Bought - Fixed Asset Sold 1870 = 2160 - Fixed Asset Sold Therefore, Fixed Asset Sold = 290.00 To calculate cash flow from assets, we first need to calculate operating cash flow . For the operating Cash flow , we need Income Statement . So the income statement ofr the year is: Income Statement Sales Costs Depreciation EBIT Interest Taxable Income Taxes(40%) Net Income ($) 12,380.00 5,776.00 1,150.00 5,454.00 314.00 5,140.00 2,056.00 3,084.00 Now we can calculate operating cash flow , which is : OCF = EBIT + Depreciation - Taxes OCF = 5454 + 1150 - 2056 i.e. 4,548.00 And the Cash flow from Asset is : Cash Flow from assets = OCF - Change in NWC - Net Capital Spending i.e. 4548 - 45 -1870 Cash flow from Asset = $2,633.00 d To find the cash flow to creditors , we first need to find the net new borrowings . The net new borrowing is the difference between the ending long term debt and the beginning long term debt so: Net new borrowing = LTD ending - LTD beginning Net new borrowing = 2477 - 2160 i.e. 317.00 So , the cash flow to creditors : Cash flow to creditors = Interest - net new borrowings Cash flow to creditors = 314 - 317 Cash flow to creditors: -3.00 The net new borrowing is also the difference between the debt issued and the debt retired. We know the amount the company issued during the year , so we can find the company retired, the amount of Debt retired was: Net new borrowing = Debt Issued - Debt Retired 317 = 432 - Debt Retired Therefore, Debt Retired = $115.00 Change in Equity = Ending Equity - beginning Equity i.e. 3018 - 2570 Change in Equity = $448.00 The change in equity is also the difference between the stock issued and the dividend paid. We know the amount the company paid dividend during the year , so we can find the stock issue, the amount of stock issued was: Change in Equity = Stock Issued - Dividend paid 448 = Stock Issued - 2000 Therefore, Stock Issued = $2,448.00 26 Cash flow to be received 2 years from today(CF1) : Perpetual growth rate(g): Discount Rate(i) : 175,000.00 3.50% 10% Value of technology after 2 years : CF1 x (1+g)/i-g i.e. 175000 x (1.035/0.10 - 0.035) 2,786,538.46 Present Value of technology = 2786538.46 / (1+i)^2 i.e 2,302,924.35 27 Quarterly Dividend(a) = 4.5 Annual Interest rate compounded quarterly : Quarterly interest rate compounded quarterly (i): Price of security : a/i i.e 4.5/0.01625 Price of security is : $276.92 6.50% 1.625% Answer to Q.38 Month Amt. Due int. paid remaining bal. 1 $250,000.00 $1,104.17 $950.00 $250,154.17 2 $250,154.17 $1,104.85 $950.00 $250,309.01 3 $250,309.01 $1,105.53 $950.00 $250,464.55 4 $250,464.55 $1,106.22 $950.00 $250,620.76 5 $250,620.76 $1,106.91 $950.00 $250,777.67 6 $250,777.67 $1,107.60 $950.00 $250,935.27 7 $250,935.27 $1,108.30 $950.00 $251,093.57 8 $251,093.57 $1,109.00 $950.00 $251,252.57 9 $251,252.57 $1,109.70 $950.00 $251,412.27 10 $251,412.27 $1,110.40 $950.00 $251,572.67 11 $251,572.67 $1,111.11 $950.00 $251,733.78 12 $251,733.78 $1,111.82 $950.00 $251,895.61 13 $251,895.61 $1,112.54 $950.00 $252,058.15 14 $252,058.15 $1,113.26 $950.00 $252,221.40 15 $252,221.40 $1,113.98 $950.00 $252,385.38 16 $252,385.38 $1,114.70 $950.00 $252,550.08 17 $252,550.08 $1,115.43 $950.00 $252,715.51 18 $252,715.51 $1,116.16 $950.00 $252,881.67 19 $252,881.67 $1,116.89 $950.00 $253,048.57 20 $253,048.57 $1,117.63 $950.00 $253,216.20 21 $253,216.20 $1,118.37 $950.00 $253,384.57 22 $253,384.57 $1,119.12 $950.00 $253,553.69 23 $253,553.69 $1,119.86 $950.00 $253,723.55 24 $253,723.55 $1,120.61 $950.00 $253,894.16 25 $253,894.16 $1,121.37 $950.00 $254,065.53 26 $254,065.53 $1,122.12 $950.00 $254,237.65 27 $254,237.65 $1,122.88 $950.00 $254,410.53 28 $254,410.53 $1,123.65 $950.00 $254,584.18 29 $254,584.18 $1,124.41 $950.00 $254,758.59 30 $254,758.59 $1,125.18 $950.00 $254,933.77 31 $254,933.77 $1,125.96 $950.00 $255,109.73 32 $255,109.73 $1,126.73 $950.00 $255,286.47 33 $255,286.47 $1,127.52 $950.00 $255,463.98 34 $255,463.98 $1,128.30 $950.00 $255,642.28 35 $255,642.28 $1,129.09 $950.00 $255,821.37 36 $255,821.37 $1,129.88 $950.00 $256,001.25 37 $256,001.25 $1,130.67 $950.00 $256,181.92 38 $256,181.92 $1,131.47 $950.00 $256,363.39 39 $256,363.39 $1,132.27 $950.00 $256,545.66 40 $256,545.66 $1,133.08 $950.00 $256,728.74 41 $256,728.74 $1,133.89 $950.00 $256,912.62 42 $256,912.62 $1,134.70 $950.00 $257,097.32 43 $257,097.32 $1,135.51 $950.00 $257,282.83 44 $257,282.83 $1,136.33 $950.00 $257,469.16 45 $257,469.16 $1,137.16 $950.00 $257,656.32 46 $257,656.32 $1,137.98 $950.00 $257,844.30 47 $257,844.30 $1,138.81 $950.00 $258,033.11 48 $258,033.11 $1,139.65 $950.00 $258,222.76 49 $258,222.76 $1,140.48 $950.00 $258,413.25 50 $258,413.25 $1,141.33 $950.00 $258,604.57 51 $258,604.57 $1,142.17 $950.00 $258,796.74 52 $258,796.74 $1,143.02 $950.00 $258,989.76 53 $258,989.76 $1,143.87 $950.00 $259,183.63 54 $259,183.63 $1,144.73 $950.00 $259,378.36 55 $259,378.36 $1,145.59 $950.00 $259,573.95 56 $259,573.95 $1,146.45 $950.00 $259,770.40 57 $259,770.40 $1,147.32 $950.00 $259,967.72 58 $259,967.72 $1,148.19 $950.00 $260,165.91 59 $260,165.91 $1,149.07 $950.00 $260,364.97 60 $260,364.97 $1,149.95 $950.00 $260,564.92 61 $260,564.92 $1,150.83 $950.00 $260,765.75 62 $260,765.75 $1,151.72 $950.00 $260,967.46 63 $260,967.46 $1,152.61 $950.00 $261,170.07 64 $261,170.07 $1,153.50 $950.00 $261,373.57 65 $261,373.57 $1,154.40 $950.00 $261,577.97 66 $261,577.97 $1,155.30 $950.00 $261,783.27 67 $261,783.27 $1,156.21 $950.00 $261,989.48 68 $261,989.48 $1,157.12 $950.00 $262,196.60 69 $262,196.60 $1,158.03 $950.00 $262,404.64 70 $262,404.64 $1,158.95 $950.00 $262,613.59 71 $262,613.59 $1,159.88 $950.00 $262,823.47 72 $262,823.47 $1,160.80 $950.00 $263,034.27 73 $263,034.27 $1,161.73 $950.00 $263,246.01 74 $263,246.01 $1,162.67 $950.00 $263,458.68 75 $263,458.68 $1,163.61 $950.00 $263,672.29 76 $263,672.29 $1,164.55 $950.00 $263,886.84 77 $263,886.84 $1,165.50 $950.00 $264,102.34 78 $264,102.34 $1,166.45 $950.00 $264,318.79 79 $264,318.79 $1,167.41 $950.00 $264,536.20 80 $264,536.20 $1,168.37 $950.00 $264,754.57 81 $264,754.57 $1,169.33 $950.00 $264,973.90 82 $264,973.90 $1,170.30 $950.00 $265,194.20 83 $265,194.20 $1,171.27 $950.00 $265,415.48 84 $265,415.48 $1,172.25 $950.00 $265,637.73 85 $265,637.73 $1,173.23 $950.00 $265,860.96 86 $265,860.96 $1,174.22 $950.00 $266,085.18 87 $266,085.18 $1,175.21 $950.00 $266,310.39 88 $266,310.39 $1,176.20 $950.00 $266,536.59 89 $266,536.59 $1,177.20 $950.00 $266,763.80 90 $266,763.80 $1,178.21 $950.00 $266,992.00 91 $266,992.00 $1,179.21 $950.00 $267,221.22 92 $267,221.22 $1,180.23 $950.00 $267,451.44 93 $267,451.44 $1,181.24 $950.00 $267,682.69 94 $267,682.69 $1,182.27 $950.00 $267,914.95 95 $267,914.95 $1,183.29 $950.00 $268,148.24 96 $268,148.24 $1,184.32 $950.00 $268,382.57 97 $268,382.57 $1,185.36 $950.00 $268,617.92 98 $268,617.92 $1,186.40 $950.00 $268,854.32 99 $268,854.32 $1,187.44 $950.00 $269,091.76 100 $269,091.76 $1,188.49 $950.00 $269,330.25 101 $269,330.25 $1,189.54 $950.00 $269,569.79 102 $269,569.79 $1,190.60 $950.00 $269,810.39 103 $269,810.39 $1,191.66 $950.00 $270,052.05 104 $270,052.05 $1,192.73 $950.00 $270,294.78 105 $270,294.78 $1,193.80 $950.00 $270,538.58 106 $270,538.58 $1,194.88 $950.00 $270,783.46 107 $270,783.46 $1,195.96 $950.00 $271,029.42 108 $271,029.42 $1,197.05 $950.00 $271,276.47 109 $271,276.47 $1,198.14 $950.00 $271,524.61 110 $271,524.61 $1,199.23 $950.00 $271,773.84 111 $271,773.84 $1,200.33 $950.00 $272,024.17 112 $272,024.17 $1,201.44 $950.00 $272,275.61 113 $272,275.61 $1,202.55 $950.00 $272,528.17 114 $272,528.17 $1,203.67 $950.00 $272,781.83 115 $272,781.83 $1,204.79 $950.00 $273,036.62 116 $273,036.62 $1,205.91 $950.00 $273,292.53 117 $273,292.53 $1,207.04 $950.00 $273,549.57 118 $273,549.57 $1,208.18 $950.00 $273,807.75 119 $273,807.75 $1,209.32 $950.00 $274,067.07 120 $274,067.07 $1,210.46 $950.00 $274,327.53 121 $274,327.53 $1,211.61 $950.00 $274,589.14 122 $274,589.14 $1,212.77 $950.00 $274,851.91 123 $274,851.91 $1,213.93 $950.00 $275,115.84 124 $275,115.84 $1,215.09 $950.00 $275,380.94 125 $275,380.94 $1,216.27 $950.00 $275,647.20 126 $275,647.20 $1,217.44 $950.00 $275,914.64 127 $275,914.64 $1,218.62 $950.00 $276,183.27 128 $276,183.27 $1,219.81 $950.00 $276,453.08 129 $276,453.08 $1,221.00 $950.00 $276,724.08 130 $276,724.08 $1,222.20 $950.00 $276,996.27 131 $276,996.27 $1,223.40 $950.00 $277,269.67 132 $277,269.67 $1,224.61 $950.00 $277,544.28 133 $277,544.28 $1,225.82 $950.00 $277,820.10 134 $277,820.10 $1,227.04 $950.00 $278,097.14 135 $278,097.14 $1,228.26 $950.00 $278,375.40 136 $278,375.40 $1,229.49 $950.00 $278,654.90 137 $278,654.90 $1,230.73 $950.00 $278,935.62 138 $278,935.62 $1,231.97 $950.00 $279,217.59 139 $279,217.59 $1,233.21 $950.00 $279,500.80 140 $279,500.80 $1,234.46 $950.00 $279,785.26 141 $279,785.26 $1,235.72 $950.00 $280,070.98 142 $280,070.98 $1,236.98 $950.00 $280,357.96 143 $280,357.96 $1,238.25 $950.00 $280,646.21 144 $280,646.21 $1,239.52 $950.00 $280,935.73 145 $280,935.73 $1,240.80 $950.00 $281,226.53 146 $281,226.53 $1,242.08 $950.00 $281,518.61 147 $281,518.61 $1,243.37 $950.00 $281,811.98 148 $281,811.98 $1,244.67 $950.00 $282,106.65 149 $282,106.65 $1,245.97 $950.00 $282,402.62 150 $282,402.62 $1,247.28 $950.00 $282,699.90 151 $282,699.90 $1,248.59 $950.00 $282,998.49 152 $282,998.49 $1,249.91 $950.00 $283,298.40 153 $283,298.40 $1,251.23 $950.00 $283,599.64 154 $283,599.64 $1,252.57 $950.00 $283,902.20 155 $283,902.20 $1,253.90 $950.00 $284,206.11 156 $284,206.11 $1,255.24 $950.00 $284,511.35 157 $284,511.35 $1,256.59 $950.00 $284,817.94 158 $284,817.94 $1,257.95 $950.00 $285,125.89 159 $285,125.89 $1,259.31 $950.00 $285,435.19 160 $285,435.19 $1,260.67 $950.00 $285,745.86 161 $285,745.86 $1,262.04 $950.00 $286,057.91 162 $286,057.91 $1,263.42 $950.00 $286,371.33 163 $286,371.33 $1,264.81 $950.00 $286,686.14 164 $286,686.14 $1,266.20 $950.00 $287,002.34 165 $287,002.34 $1,267.59 $950.00 $287,319.93 166 $287,319.93 $1,269.00 $950.00 $287,638.93 167 $287,638.93 $1,270.41 $950.00 $287,959.33 168 $287,959.33 $1,271.82 $950.00 $288,281.15 169 $288,281.15 $1,273.24 $950.00 $288,604.39 170 $288,604.39 $1,274.67 $950.00 $288,929.06 171 $288,929.06 $1,276.10 $950.00 $289,255.17 172 $289,255.17 $1,277.54 $950.00 $289,582.71 173 $289,582.71 $1,278.99 $950.00 $289,911.70 174 $289,911.70 $1,280.44 $950.00 $290,242.14 175 $290,242.14 $1,281.90 $950.00 $290,574.05 176 $290,574.05 $1,283.37 $950.00 $290,907.41 177 $290,907.41 $1,284.84 $950.00 $291,242.26 178 $291,242.26 $1,286.32 $950.00 $291,578.58 179 $291,578.58 $1,287.81 $950.00 $291,916.38 180 $291,916.38 $1,289.30 $950.00 $292,255.68 181 $292,255.68 $1,290.80 $950.00 $292,596.47 182 $292,596.47 $1,292.30 $950.00 $292,938.77 183 $292,938.77 $1,293.81 $950.00 $293,282.59 184 $293,282.59 $1,295.33 $950.00 $293,627.92 185 $293,627.92 $1,296.86 $950.00 $293,974.78 186 $293,974.78 $1,298.39 $950.00 $294,323.16 187 $294,323.16 $1,299.93 $950.00 $294,673.09 188 $294,673.09 $1,301.47 $950.00 $295,024.56 189 $295,024.56 $1,303.03 $950.00 $295,377.59 190 $295,377.59 $1,304.58 $950.00 $295,732.17 191 $295,732.17 $1,306.15 $950.00 $296,088.32 192 $296,088.32 $1,307.72 $950.00 $296,446.05 193 $296,446.05 $1,309.30 $950.00 $296,805.35 194 $296,805.35 $1,310.89 $950.00 $297,166.24 195 $297,166.24 $1,312.48 $950.00 $297,528.73 196 $297,528.73 $1,314.09 $950.00 $297,892.81 197 $297,892.81 $1,315.69 $950.00 $298,258.50 198 $298,258.50 $1,317.31 $950.00 $298,625.81 199 $298,625.81 $1,318.93 $950.00 $298,994.74 200 $298,994.74 $1,320.56 $950.00 $299,365.30 201 $299,365.30 $1,322.20 $950.00 $299,737.50 202 $299,737.50 $1,323.84 $950.00 $300,111.34 203 $300,111.34 $1,325.49 $950.00 $300,486.83 204 $300,486.83 $1,327.15 $950.00 $300,863.98 205 $300,863.98 $1,328.82 $950.00 $301,242.80 206 $301,242.80 $1,330.49 $950.00 $301,623.29 207 $301,623.29 $1,332.17 $950.00 $302,005.46 208 $302,005.46 $1,333.86 $950.00 $302,389.31 209 $302,389.31 $1,335.55 $950.00 $302,774.87 210 $302,774.87 $1,337.26 $950.00 $303,162.12 211 $303,162.12 $1,338.97 $950.00 $303,551.09 212 $303,551.09 $1,340.68 $950.00 $303,941.77 213 $303,941.77 $1,342.41 $950.00 $304,334.18 214 $304,334.18 $1,344.14 $950.00 $304,728.33 215 $304,728.33 $1,345.88 $950.00 $305,124.21 216 $305,124.21 $1,347.63 $950.00 $305,521.84 217 $305,521.84 $1,349.39 $950.00 $305,921.23 218 $305,921.23 $1,351.15 $950.00 $306,322.38 219 $306,322.38 $1,352.92 $950.00 $306,725.30 220 $306,725.30 $1,354.70 $950.00 $307,130.01 221 $307,130.01 $1,356.49 $950.00 $307,536.50 222 $307,536.50 $1,358.29 $950.00 $307,944.79 223 $307,944.79 $1,360.09 $950.00 $308,354.87 224 $308,354.87 $1,361.90 $950.00 $308,766.78 225 $308,766.78 $1,363.72 $950.00 $309,180.50 226 $309,180.50 $1,365.55 $950.00 $309,596.04 227 $309,596.04 $1,367.38 $950.00 $310,013.43 228 $310,013.43 $1,369.23 $950.00 $310,432.65 229 $310,432.65 $1,371.08 $950.00 $310,853.73 230 $310,853.73 $1,372.94 $950.00 $311,276.67 231 $311,276.67 $1,374.81 $950.00 $311,701.47 232 $311,701.47 $1,376.68 $950.00 $312,128.15 233 $312,128.15 $1,378.57 $950.00 $312,556.72 234 $312,556.72 $1,380.46 $950.00 $312,987.18 235 $312,987.18 $1,382.36 $950.00 $313,419.54 236 $313,419.54 $1,384.27 $950.00 $313,853.81 237 $313,853.81 $1,386.19 $950.00 $314,289.99 238 $314,289.99 $1,388.11 $950.00 $314,728.11 239 $314,728.11 $1,390.05 $950.00 $315,168.16 240 $315,168.16 $1,391.99 $950.00 $315,610.15 241 $315,610.15 $1,393.94 $950.00 $316,054.10 242 $316,054.10 $1,395.91 $950.00 $316,500.00 243 $316,500.00 $1,397.88 $950.00 $316,947.88 244 $316,947.88 $1,399.85 $950.00 $317,397.73 245 $317,397.73 $1,401.84 $950.00 $317,849.57 246 $317,849.57 $1,403.84 $950.00 $318,303.40 247 $318,303.40 $1,405.84 $950.00 $318,759.25 248 $318,759.25 $1,407.85 $950.00 $319,217.10 249 $319,217.10 $1,409.88 $950.00 $319,676.97 250 $319,676.97 $1,411.91 $950.00 $320,138.88 251 $320,138.88 $1,413.95 $950.00 $320,602.83 252 $320,602.83 $1,416.00 $950.00 $321,068.82 253 $321,068.82 $1,418.05 $950.00 $321,536.88 254 $321,536.88 $1,420.12 $950.00 $322,007.00 255 $322,007.00 $1,422.20 $950.00 $322,479.20 256 $322,479.20 $1,424.28 $950.00 $322,953.48 257 $322,953.48 $1,426.38 $950.00 $323,429.86 258 $323,429.86 $1,428.48 $950.00 $323,908.34 259 $323,908.34 $1,430.60 $950.00 $324,388.93 260 $324,388.93 $1,432.72 $950.00 $324,871.65 261 $324,871.65 $1,434.85 $950.00 $325,356.50 262 $325,356.50 $1,436.99 $950.00 $325,843.49 263 $325,843.49 $1,439.14 $950.00 $326,332.63 264 $326,332.63 $1,441.30 $950.00 $326,823.94 265 $326,823.94 $1,443.47 $950.00 $327,317.41 266 $327,317.41 $1,445.65 $950.00 $327,813.06 267 $327,813.06 $1,447.84 $950.00 $328,310.90 268 $328,310.90 $1,450.04 $950.00 $328,810.94 269 $328,810.94 $1,452.25 $950.00 $329,313.19 270 $329,313.19 $1,454.47 $950.00 $329,817.66 271 $329,817.66 $1,456.69 $950.00 $330,324.35 272 $330,324.35 $1,458.93 $950.00 $330,833.28 273 $330,833.28 $1,461.18 $950.00 $331,344.46 274 $331,344.46 $1,463.44 $950.00 $331,857.90 275 $331,857.90 $1,465.71 $950.00 $332,373.61 276 $332,373.61 $1,467.98 $950.00 $332,891.59 277 $332,891.59 $1,470.27 $950.00 $333,411.86 278 $333,411.86 $1,472.57 $950.00 $333,934.43 279 $333,934.43 $1,474.88 $950.00 $334,459.31 280 $334,459.31 $1,477.20 $950.00 $334,986.50 281 $334,986.50 $1,479.52 $950.00 $335,516.03 282 $335,516.03 $1,481.86 $950.00 $336,047.89 283 $336,047.89 $1,484.21 $950.00 $336,582.10 284 $336,582.10 $1,486.57 $950.00 $337,118.67 285 $337,118.67 $1,488.94 $950.00 $337,657.61 286 $337,657.61 $1,491.32 $950.00 $338,198.94 287 $338,198.94 $1,493.71 $950.00 $338,742.65 288 $338,742.65 $1,496.11 $950.00 $339,288.76 289 $339,288.76 $1,498.53 $950.00 $339,837.29 290 $339,837.29 $1,500.95 $950.00 $340,388.23 291 $340,388.23 $1,503.38 $950.00 $340,941.62 292 $340,941.62 $1,505.83 $950.00 $341,497.44 293 $341,497.44 $1,508.28 $950.00 $342,055.72 294 $342,055.72 $1,510.75 $950.00 $342,616.47 295 $342,616.47 $1,513.22 $950.00 $343,179.69 296 $343,179.69 $1,515.71 $950.00 $343,745.40 297 $343,745.40 $1,518.21 $950.00 $344,313.61 298 $344,313.61 $1,520.72 $950.00 $344,884.33 299 $344,884.33 $1,523.24 $950.00 $345,457.57 300 $345,457.57 $1,525.77 $950.00 $346,033.34 301 $346,033.34 $1,528.31 $950.00 $346,611.65 302 $346,611.65 $1,530.87 $950.00 $347,192.52 303 $347,192.52 $1,533.43 $950.00 $347,775.95 304 $347,775.95 $1,536.01 $950.00 $348,361.96 305 $348,361.96 $1,538.60 $950.00 $348,950.56 306 $348,950.56 $1,541.20 $950.00 $349,541.76 307 $349,541.76 $1,543.81 $950.00 $350,135.57 308 $350,135.57 $1,546.43 $950.00 $350,732.00 309 $350,732.00 $1,549.07 $950.00 $351,331.07 310 $351,331.07 $1,551.71 $950.00 $351,932.78 311 $351,932.78 $1,554.37 $950.00 $352,537.15 312 $352,537.15 $1,557.04 $950.00 $353,144.19 313 $353,144.19 $1,559.72 $950.00 $353,753.91 314 $353,753.91 $1,562.41 $950.00 $354,366.32 315 $354,366.32 $1,565.12 $950.00 $354,981.44 316 $354,981.44 $1,567.83 $950.00 $355,599.28 317 $355,599.28 $1,570.56 $950.00 $356,219.84 318 $356,219.84 $1,573.30 $950.00 $356,843.14 319 $356,843.14 $1,576.06 $950.00 $357,469.20 320 $357,469.20 $1,578.82 $950.00 $358,098.02 321 $358,098.02 $1,581.60 $950.00 $358,729.62 322 $358,729.62 $1,584.39 $950.00 $359,364.01 323 $359,364.01 $1,587.19 $950.00 $360,001.20 324 $360,001.20 $1,590.01 $950.00 $360,641.21 325 $360,641.21 $1,592.83 $950.00 $361,284.04 326 $361,284.04 $1,595.67 $950.00 $361,929.71 327 $361,929.71 $1,598.52 $950.00 $362,578.23 328 $362,578.23 $1,601.39 $950.00 $363,229.62 329 $363,229.62 $1,604.26 $950.00 $363,883.89 330 $363,883.89 $1,607.15 $950.00 $364,541.04 331 $364,541.04 $1,610.06 $950.00 $365,201.10 332 $365,201.10 $1,612.97 $950.00 $365,864.07 333 $365,864.07 $1,615.90 $950.00 $366,529.97 334 $366,529.97 $1,618.84 $950.00 $367,198.81 335 $367,198.81 $1,621.79 $950.00 $367,870.60 336 $367,870.60 $1,624.76 $950.00 $368,545.36 337 $368,545.36 $1,627.74 $950.00 $369,223.11 338 $369,223.11 $1,630.74 $950.00 $369,903.84 339 $369,903.84 $1,633.74 $950.00 $370,587.58 340 $370,587.58 $1,636.76 $950.00 $371,274.35 341 $371,274.35 $1,639.80 $950.00 $371,964.14 342 $371,964.14 $1,642.84 $950.00 $372,656.98 343 $372,656.98 $1,645.90 $950.00 $373,352.88 344 $373,352.88 $1,648.98 $950.00 $374,051.86 345 $374,051.86 $1,652.06 $950.00 $374,753.92 346 $374,753.92 $1,655.16 $950.00 $375,459.08 347 $375,459.08 $1,658.28 $950.00 $376,167.36 348 $376,167.36 $1,661.41 $950.00 $376,878.77 349 $376,878.77 $1,664.55 $950.00 $377,593.32 350 $377,593.32 $1,667.70 $950.00 $378,311.02 351 $378,311.02 $1,670.87 $950.00 $379,031.89 352 $379,031.89 $1,674.06 $950.00 $379,755.95 353 $379,755.95 $1,677.26 $950.00 $380,483.21 354 $380,483.21 $1,680.47 $950.00 $381,213.67 355 $381,213.67 $1,683.69 $950.00 $381,947.37 356 $381,947.37 $1,686.93 $950.00 $382,684.30 357 $382,684.30 $1,690.19 $950.00 $383,424.49 358 $383,424.49 $1,693.46 $950.00 $384,167.95 359 $384,167.95 $1,696.74 $950.00 $384,914.69 360 $384,914.69 $1,700.04 $0.00 $386,614.73 Hence, To keep the monthly payment of dollar 950, Balloon payment at the end of 30th year will be dollar 386,641.73 Answer to Q.58 APR = 6 % Monthly Rate = 6/12 = 0.5 Note 1: It is assumed that rate are monthly compounded for the sake of simplicity. Lease Option Month 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 Payment DF @ 0.5 % PV 1500 1 1500 405 0.995 402.975 405 0.99 400.95 405 0.985 398.925 405 0.98 396.9 405 0.975 394.875 405 0.97 392.85 405 0.965 390.825 405 0.96 388.8 405 0.955 386.775 405 0.95 384.75 405 0.945 382.725 405 0.94 380.7 405 0.935 378.675 405 0.93 376.65 405 0.925 374.625 405 0.92 372.6 405 0.915 370.575 405 0.91 368.55 405 0.905 366.525 405 0.9 364.5 405 0.895 362.475 405 0.89 360.45 405 0.885 358.425 405 0.88 356.4 405 0.875 354.375 405 0.87 352.35 405 0.865 350.325 405 0.86 348.3 405 0.855 346.275 405 0.85 344.25 405 0.845 342.225 405 0.84 340.2 405 0.835 338.175 405 0.83 336.15 405 0.825 334.125 405 0.82 332.1 Present Value = 14731.35 Present value of lease option = 14731.35 present value of Loan option = 31000 + 20000 x .8396 = 47792 The customer should lease the car as lease option is very cheaper. Answer to Q.66 Year payment DF @ 11% Present Value 1 $500.00 0.9009009009 $450.45 2 $600.00 0.8116224332 $486.97 3 $700.00 0.7311913813 $511.83 4 $800.00 0.6587309741 $526.98 5 $900.00 0.5934513281 $534.11 6 $1,000.00 0.5346408361 $534.64 Present Value of all 6 Payments $3,044.99 First 6 year Int. rate is 11% so, Value at the end of 6 year= 3044.98688*1.11^6 = $5,695.39 Int. rate for remaining 59 year is 7% So, Value at the end of 65 year should be = 5695.393*1.07^59 = $308,437.08 Since the Insurance Co. is paying at the end of 65th year only dollar 275,000, which is less then dollar 308,437.1, the policy is not worth buying. Project A Year 0 1 2 3 Project B Cumulative Cash Flow CF $(15,000.00) $(15,000.00) $9,500.00 $(5,500.00) $6,000.00 $500.00 $2,400.00 $2,900.00 Payback period = Year 0 1 2 3 1.9166666667 Cumulative Cash Flow CF $(18,000.00) $(18,000.00) $10,500.00 $(7,500.00) $7,000.00 $(500.00) $6,000.00 $5,500.00 Payback period = 2.0833333333 Year DF @ 15% So, Project A should be accepted NPV Approach Year 0 1 2 3 Cash Flow $(15,000.00) $9,500.00 $6,000.00 $2,400.00 DF @ 15% 1 0.8695652174 0.7561436673 0.6575162324 PV of CF $(15,000.00) $8,260.87 $4,536.86 $1,578.04 $(624.23) Since NPV under project B is Positive, Project B should be accepted. 0 1 2 3 Cash Flow $(18,000.00) $10,500.00 $7,000.00 $6,000.00 1 0.8695652174 0.7561436673 0.6575162324 PV of CF $(18,000.00) $9,130.43 $5,293.01 $3,945.10 $368.54 Answer to Q.11 A. Project A Let IRR be 15% Year Cash Flow DF @ 15% PV of CF 0 $(950,000.00) 1 $(950,000.00) 1 $370,000.00 0.8695652174 $321,739.13 2 $510,000.00 0.7561436673 $385,633.27 3 $420,000.00 0.6575162324 $276,156.82 $33,529.22 Project B Let IRR be 15% Year Cash Flow DF @ 15% PV of CF 0 $(1,850,000.00) 1 $(1,850,000.00) 1 $900,000.00 0.8695652174 $782,608.70 2 $800,000.00 0.7561436673 $604,914.93 3 $750,000.00 0.6575162324 $493,137.17 $30,660.80 Let IRR be 19% Year Cash Flow DF @ 19% PV of CF 0 $(950,000.00) 1 $(950,000.00) 1 $370,000.00 0.8403361345 $310,924.37 2 $510,000.00 0.7061648189 $360,144.06 3 $420,000.00 0.5934158142 $249,234.64 $(29,696.93) Let IRR be 19% Year Cash Flow DF @ 19% PV of CF 0 $(1,850,000.00) 1 $(1,850,000.00) 1 $900,000.00 0.8403361345 $756,302.52 2 $800,000.00 0.7061648189 $564,931.86 3 $750,000.00 0.5934158142 $445,061.86 $(83,703.76) Interpolating 15% & 19% Interpolating 15% & 19% .15-IRR .15-.19 = $33,529.22 $63,226.15 .15-IRR .15-.19 = $30,660.80 $114,364.57 .15-IRR = -0.021212248 .15-IRR = -0.0107238823 IRR = IRR = 16.0723882264 % 17.12122477 % As IRR in Project A is higher, Project A should be accepted. B. Incremental IRR Approach Let IRR be 15% Incremental Year DF @ 15% PV of CF Cash Flow 0 $(900,000.00) 1 $(900,000.00) 1 $530,000.00 0.8695652174 $460,869.57 2 $290,000.00 0.7561436673 $219,281.66 3 $330,000.00 0.6575162324 $216,980.36 $(2,868.41) Let IRR be 19% Incremental Year DF @ 19% PV of CF Cash Flow 0 $(900,000.00) 1 $(900,000.00) 1 $530,000.00 0.8403361345 $445,378.15 2 $290,000.00 0.7061648189 $204,787.80 3 $330,000.00 0.5934158142 $195,827.22 $(54,006.83) Interpolating 15% & 19% .15-IRR .15-.19 = $(2,868.41) $51,138.42 .15-IRR = 0.0022436475 IRR = 14.77563525 % Since Incremental IRR of Project B is less than IRR of Project A, Project A should be accepted C. Year 0 1 2 3 Cash Flow DF @ 14% PV of CF $(950,000.00) 1 $(950,000.00) $370,000.00 0.8771929825 $324,561.40 $510,000.00 0.7694675285 $392,428.44 $420,000.00 0.6749715162 $283,488.04 NPV= $50,477.88 Year 0 1 2 3 Cash Flow DF @ 14% PV of CF $(1,850,000.00) 1 $(1,850,000.00) $900,000.00 0.8771929825 $789,473.68 $800,000.00 0.7694675285 $615,574.02 $750,000.00 0.6749715162 $506,228.64 NPV= $61,276.34 Since, NPV of Project B is more, Project B should be accepted. No, It is not consistent with IRR rule as Incremental IRR of project B is showing lower return. Answer to Q.15 A. Year Ranking Project on the basis of Profitability Index. (Figures in Lakh) DF @ 10% CDMA G4 WIFI 1 0.90909091 $10.00 $9.09 $16.36 2 0.82644628 $6.20 $20.66 $26.45 3 0.7513148 $1.88 $15.03 $37.57 PV $18.08 $44.78 $80.38 Initial Inv. $8.00 Profitability Index = Rank B. Year = $20.00 PV Initial Inv. $2.26 $3.73 $4.02 3 2 1 Ranking Project on the basis of NPV. (Figures in Lakh) DF @ 10% CDMA G4 WIFI 0 1 $(8.00) $(12.00) $(20.00) 1 0.90909091 $10.00 $9.09 $16.36 2 0.82644628 $6.20 $20.66 $26.45 3 0.7513148 $1.88 $15.03 $37.57 NPV $10.08 $32.78 $60.38 Rank C. $12.00 3 2 1 Recommendation Since both NPV & PI of WIFI is highest, WIFI should only be implemented as the investment amount is limited to dollar 20. Answer to Q.2 Incremental Net Income Year 0 a Investment $(24,000.00) b Net WC $(300.00) c Revenue d Op. Cost e Dep. Incremental Net Income $(24,300.00) A. B. C. 1 $$50.00 $12,500.00 $(2,700.00) $6,000.00 $15,851.00 Incremental Cash flow of Investment. Year 0 Investment $(24,000.00) 2 $$50.00 $500.00 $(100.00) $$452.00 3 $$(100.00) $500.00 $(100.00) $$303.00 4 $$300.00 $(3,000.00) $700.00 $$(1,996.00) 2 3 4 1 $- $- $- $- NPV Year Investment Net WC Revenue Op. Cost Dep. DF @ 12% PV NPV 0 $(24,000.00) 300 1 2 3 4 $$$$350 400 300 0 12500 13000 13500 10500 2700 2800 2900 2100 6000 6000 6000 6000 $(23,700.00) $21,551.00 $22,202.00 $22,703.00 $18,604.00 1 0.909090909 0.826446281 0.751314801 0.683013455 $(23,700.00) $19,591.82 $18,348.76 $17,057.10 $12,706.78 $44,004.46 Year Investment W. Cap Net Revenue Dep. Salvage Tax Post Tax CF 0 $(365,000.00) $(10,000.00) $$(375,000.00) 1 $175,000.00 $64,000.00 $37,740.00 $137,260.00 2 $180,250.00 $64,000.00 $54,825.00 $125,425.00 3 $185,657.50 $64,000.00 $41,363.55 $144,293.95 4 $191,227.23 $64,000.00 $43,257.26 $147,969.97 5 $10,000.00 $196,964.04 $64,000.00 $45,000.00 $60,507.77 $191,456.27 Year Dep. Salvage operating Cost Tax Saving Net Cost DF @ 12%PV 1 25333.33 8600 11,537.33 22,396.00 0.892857 19,996.43 2 25333.33 8600 11,537.33 22,396.00 0.797194 17,853.95 3 25333.33 -18000 8600 5,417.33 10,516.00 0.71178 7,485.08 45,335.46 so Annual Eq. cost = 15,111.82 x Answer to question 9 Sale price Less: Variable Cost Contribution per unit: 35.00 6.10 28.90 Total Fixed Costs = 375000 + 120000 i.e. 495,000.00 Accounting Break Even Point = Total Fixed Cost/ Contribution per unit i.e. 495000/28.9 Break Even Point = 17,128 units Financial Break Even Point Financial Break Even Point : (EAC +(fixed Costs)(1-t) - Depreciation(t))/(contribution(1-t) EAC : Initial Investment / Annuity Factor Initial Investment : 840,000.00 Annuity Factor for 15% for 7 years: EAC : 201,902.69 4.16042 Tax Rate: 35% Financial break even point : (2,01,902.69 + (375000 x .65) - (120000 x 0.35)/28.90(0.65) i.e. 21,488 Year 1 2 3 4 5 6 7 15% 0.869565 0.756144 0.657516 0.571753 0.497177 0.432328 0.375937 4.16042 Answer to question 10 Financial Break Even Point Financial Break Even Point : (EAC +(fixed Costs)(1-t) - Depreciation(t))/(contribution(1-t) EAC : Initial Investment / Annuity Factor Initial Investment: Depreciation : Sale price per unit: Variable Cost per unit: Contribution per unit: Fixed Cost per year: Tax Rate: Discount Rate: Annuity Factor: EAC : 575,000.00 115,000.00 60.00 14.00 46.00 165,000.00 34% 8% 3.992710037 144,012.46 NOW, Financial break even point : (144012.46 + (165000 x .66) - (115000 x 0.34)/46(0.66) i.e. 7,042.57 units Year 1 2 3 4 5 8% 0.925926 0.857339 0.793832 0.73503 0.680583 3.99271 Answer to question 13 Scenario Base Best Worst Unit Sales 450 495 +-1% 405 +-1% Variable Cost 15400 13860 +-1% 16940 + -1% Sale Price per unit: Discount Rate: Tax Rate: Fixed Cost 610000 549000 +-1% 671000 + - 1% 18000 15% 35% Year 1 2 3 4 15% 0.869565 0.756144 0.657516 0.571753 2.854978 Using the tax shield approach , the OCF and NPV for the base case estimate is: OCFbase : ((18,000 - 15,400)(450) - 610000)(.65) + 0.35(820000/4) 435,750.00 NPVbase: -820000 + 4,35,750(PVIFA15%,4 years) 424,056.82 Using the tax shield approach , the OCF and NPV for the worst case estimate is: OCFworst : ((18,000 - 16940)(405) - 671000)(.65) + 0.35(820000/4) -85,355.00 NPVworst: -820000 + 85355(PVIFA15%,4 years) -1,063,686.68 Using the tax shield approach , the OCF and NPV for the best case estimate is: OCFbest : ((18,000 - 13860)(495) - 549000)(.65) + 0.35(820000/4) 1,046,945.00 NPVbest: -820000 + 1046945(PVIFA15%,4 years) 2,169,005.32 b To calculate the sensitivity of the NPV to the change in Fixed Costs, we choose another level of fixed costs, we will use Fixed costs of 620000 . The OCF using this level and the other base - case values with the tax shield approach we get: OCF : NPV: ((18,000 - 15,400)(450) - 620000)(.65) + 0.35(820000/4) 429,250.00 -820000 + 429250(PVIFA15%,4 years) 405,499.46 The Sensitivity of NPV to change in Fixed cost is: Change in NPV/Change in Fixed Cost : (424056.82 -405499.46)/(610000-620000) -1.86 For every $ FC increases NPV falls by $1.86 c Accounting Break Even Level Sale price per unit : Less: Variable Cost: Contribution per unit: 18,000.00 15,400.00 2,600.00 Total Fixed Cost: 610000 + (820000/4) i.e. 815000 Accounting Break Even Point = Total Fixed Cost/ Contribution per unit Therefore, Accounting Break even point: 313.46 units FINA 6301 HW Problems - 10TH Edition Chapters 10 and 11- Session 8 Answer to Q 7. Year X 1 2 3 4 5 X- Y 8 21 -27 11 18 31 Bar of X = 31/5 = Bar of Y = 49/5 = 12 27 -32 18 24 49 x 1.8 14.8 -33.2 4.8 11.8 _ Y -Y 2.2 17.2 -41.8 8.2 14.2 Square of X - x 3.24 219.04 1102.24 23.04 139.24 1486.8 square of _ (X - bar of X)(Y Y Y - bar of Y) 4.84 295.84 1747.24 67.24 201.64 2316.8 3.96 254.56 1387.76 39.36 167.56 1853.2 6.2 9.8 S.D of X = Square root of( Addition of square of X - bar of X)/No. of years = Square root of 1486.8/5 = 297.36 S.D of Y = Square root of( Addition of square of Y - bar of Y)/No. of years = Square root of 2316.80/5 = 463.36 Covariance = Addition of ( X - bar of X) and (Y - bar of Y)/No. of years = 1853.20/5 = 370.64 Coefficient = Covariance/S.D of X and S.D of Y = 370.64/297.36*463.36 = .00269 Answer to Q 5. Let x be Stock A and y be Stock B State of Economy Recession Normal Boom Prob. A(x) 0.2 0.55 0.25 B(y) 0.06 0.07 0.11 Px -0.2 0.13 0.33 Py 0.012 0.0385 0.0275 0.078 x - bar of x -0.04 0.0715 0.0825 0.114 -0.018 -0.008 0.032 Square of Square of p* Square of y - bar of y x - bar of x y - bar of y x - bar of x -0.314 0.016 0.216 0.000324 0.000064 0.001024 0.098596 0.000256 0.046656 0.0000648 0.0000352 0.000256 0.000356 p* Square of y - bar of y 0.0197192 0.0001408 0.011664 0.031524 p* (x - bar of x)(y bar of y) 0.0011304 0.0000704 0.001728 0.0029288 S.D of X = Square root of( Addition of p* square of x - bar of x) = Square root of .000356 = .01886 S.D of Y = Square root of( Addition of p* square of y - bar of y) = Square root of .031524 = .017752 Covariance = Addition of P* ( X - bar of X) and (Y - bar of Y) = .0029288 Coefficient = Covariance/S.D of X and S.D of Y = .0029288/.01886*.177524 = .8747 Answer to Q 28. (a) Expected Return of Stock A = .09 Expected Return of Stock A = .15 Expected Return of Portfolio = .09 x .35 + .15 x .65 = .129 Correlation = 5 Weight of A = .35 Weight of B = .65 S.D of portfolio = square root of (Square of weight of A x square of S.D of A) + (Square of weight of B x square of S.D of B) + 2 x Weight of A x Weight of B x Correlation x S.D of A x S.D of B) = square root of (Square of .35 x square of .36) + (Square of .65 x square of .62) + 2 x .35 x .65 x .5 x .36 x .62) = .4858 (b) S.D of portfolio = square root of (Square of weight of A x square of S.D of A) + (Square of weight of B x square of S.D of B) + 2 x Weight of A x Weight of B x Correlation x S.D of A x S.D of B) = square root of (Square of .35 x square of .36) + (Square of .65 x square of .62) + 2 x .35 x .65 x- .5 x .36 x .62) = .3570 (C) If Stock A and B are positively correlated then Standard deviation of portfolio is higher in comparison to negative correlation between A and B. FINA 6301 HW Problems - 10TH Edition Chapter 11- Session 9 Answer to Q 10. Portfolio Beta = .10 x .75 + .35 x 1.90 + .20 x 1.38 + .35 x 1.16 = 1.422 Answer to Q 12. Expected Return = Risk Free return + (Market Return - Risk free return)Beta = 5 + 6 x 1.15 = 11.90 Answer to Q 13. Expected Return = Risk Free return + (Market Return - Risk free return)Beta 10.2 = 4 + 7 Beta Beta = .885 Answer to Q 29. (a) (i) Beta = r* S.D of firm A/S.D of market .85 = * 0.31/0.2 = 1.3175 r (ii) Beta = r* S.D of firm A/S.D of market 1.40 = .50 x S.D/.20 S.D = 1.40 x .20/.50 S.D = 0.56 (iii) Beta = r* S.D of firm A/S.D of market 0.35*0.65/0.2 = 1.1375 (Iv) Correlation of the market portfolio with market portfolio is always 1. (v) Beta of market portfolio is 1. (vi) S.D of risk free assets is always 0. (vii) Correlation of the market portfolio with risk free assets is always 0. (viii) Beta of risk free assets is 0. (b) As per CAPM, Required rate of return from Firm A = .05 + (.12 - .05).85 .05 + .07 x .85 = .05 + .0595 = .1095 Expected Rate of return from Firm A = 0.1 Expected rate is lower than required rate. So Stock of Firm A is under priced. Firm B Required rate of return from Firm B = .05 + (.12 - .05)1.40 .05 + .07 x 1.40 = .05 + .098 = .148 Expected Rate of return from Firm B = 0.14 Expected rate is lower than required rate. So Stock of Firm B is under priced. Firm C Required rate of return from Firm C = .05 + (.12 - .05)1.1375 .05 + .07 x 1.1375 = .05 + .079625 = .1296 Expected Rate of return from Firm B = 0.16 Expected rate is higher than required rate. So Stock of Firm B is over priced. I would recommend to invest in Stock of Firm A and B as stock are under priced. Answer to Q 30. (a) Expected return of portfolio = Risk free rate +( Market Rate - risk free rate)S.D of portfolio/S. D of market 5 + (12 - 5)*9/22 = 7.86 % (b) Expected return of portfolio = Risk free rate +( Market Rate - risk free rate)S.D of portfolio/S. D of market 20 = 5 + (12 - 5)*S.D of portfolio /22 20 = 5 + 7/22 * S.D of portfolio S.D of portfolio = 3.7608 Ke = Rf + (Rm - Rf)* Beta = 11.50 Mkt. value of Stock = $439.90 million Kd as per market value of Debt Semi Annual Annual Mkt Value Bond 1 0.0360 7.20 $75.81 million Bond 2 WACC = 0.0224 10.15 % 4.48 $65.34 million Ke = Rf + (Rm - Rf)* Beta = 12.7000 Mkt. value of stock = 10150000 Kd = 0.0186 3.7143 Mkt value of debt = 5250000 WACC = 9.6367 % Project W X Y Z Beta Re A. Project Y & Z has higher expected return than 11% B. Project Y & Z should be accepted as expected return from this project is higher than the cost of capital. C. Hurdle Rate = 11.875 % 0.8 0.95 1.15 1.45 9.5 % 10.625 % 12.125 % 14.375 % As per hurdle rate, Project Y & Z should be accepted. ANSWER TO Q 24 (a) Total Value of equity = $6.3 m profit before tax = $ 1.5 m Profit after tax = 1.5 - 1.5 * .40 = 0.9 Expected return = 0.9/6.3 * 100 = 14.29 % (b) Market Value of total equity should be 6.3 + 0.9 = 7.2 Total shares outstanding = 400000 Price per equity = 7200000/400000 = $18 (c) Market Value of Green after issue of Bond = 6.3 + 2 -2 + 0.9 =$ 7.2 m (d) Green stock price after issue of bond will remain as $18 as there is no change in price earning ratio. (e) Number of stock repurchase = 2000000/18 = 111111 Remaining Stock = 400000 - 111111 = 288889 (f) Market Value of Shares = 6.3 + 0.9 - 2 = 5.2 Market Value of Bond = 2 (g) Weight of stock = 5.2/6.3 = 0.825 Weight of Bond = 0.175 Required Return = .825 x 14.29 % + .175 x 6% = 12.83% a Owner's Equity: Total Assets - Total Liabilities For 2011, Total Assets = Current Assets + Net Fixed Assets = 936 + 4176 i.e. 5,112.00 Total Liabilities = Current Liabilities + Long term Debt = 382 + 2160 i.e. 2,542.00 Therefore, Owner's Equity = 5112 - 2542 Owner's Equity: 2,570.00 For 2012, Total Assets = Current Assets + Net Fixed Assets = 1015 + 4896 i.e. 5,911.00 Total Liabilities = Current Liabilities + Long term Debt = 416 + 2477 i.e. 2,893.00 Therefore, Owner's Equity = 5911 - 2893 Owner's Equity: 3,018.00 b The Change in Net Working Capital was: Change in NWC = NWCend - NWCbeg Change in NWC = (CAend - Clend) - (CAbeg - Clbeg) Change in NWC = (1015 - 416) - (936 - 382) Change in NWC: 45 c To find the amount of Fixed assets company sold , we need to find the net capital spending, The net capital Spending was: Net Capital Spending = NFAend - NFAbeg + Depreciation Net Capital Spending = 4896 - 4176 + 1150 i.e. 1,870.00 To find the fixed asset sold, we can also calculate net capital spending as : Net capital Spending = Fixed Asset Bought - Fixed Asset Sold 1870 = 2160 - Fixed Asset Sold Therefore, Fixed Asset Sold = 290.00 To calculate cash flow from assets, we first need to calculate operating cash flow . For the operating Cash flow , we need Income Statement . So the income statement Income Statement Sales Costs Depreciation EBIT Interest Taxable Income Taxes(40%) Net Income ($) 12,380.00 5,776.00 1,150.00 5,454.00 314.00 5,140.00 2,056.00 3,084.00 Now we can calculate operating cash flow , which is : OCF = EBIT + Depreciation - Taxes OCF = 5454 + 1150 - 2056 i.e. 4,548.00 And the Cash flow from Asset is : Cash Flow from assets = OCF - Change in NWC - Net Capital Spending i.e. 4548 - 45 -1870 Cash flow from Asset = $ 2,633.00 d To find the cash flow to creditors , we first need to find the net new borrowings . The net new borrowing is the difference between the ending long term debt and the beginning long term debt so: Net new borrowing = LTD ending - LTD beginning Net new borrowing = 2477 - 2160 i.e. 317.00 So , the cash flow to creditors : Cash flow to creditors = Interest - net new borrowings Cash flow to creditors = 314 - 317 Cash flow to creditors: -3.00 The net new borrowing is also the difference between the debt issued and the debt retired. We know the amount the company issued during the year , so we can find the company retired, the amount of Debt retired was: Net new borrowing = Debt Issued - Debt Retired 317 = 432 - Debt Retired Therefore, Debt Retired = $ 115.00 Change in Equity = Ending Equity - beginning Equity i.e. 3018 - 2570 Change in Equity = $ 448.00 The change in equity is also the difference between the stock issued and the dividend paid. We know the amount the company paid dividend during the year , so we can find the stock issue, the amount of stock issued was: Change in Equity = Stock Issued - Dividend paid 448 = Stock Issued - 2000 Therefore, Stock Issued = $ 2,448.00 t ofr the year is: 26 Cash flow to be received 2 years from today(CF1) : Perpetual growth rate(g): Discount Rate(i) : 175,000.00 3.50% 10% Value of technology after 2 years : CF1 x (1+g)/i-g i.e. 175000 x (1.035/0.10 - 0.035) 2,786,538.46 Present Value of technology = 2786538.46 / (1+i)^2 i.e 2,302,924.35 27 Quarterly Dividend(a) = 4.5 Annual Interest rate compounded quarterly : Quarterly interest rate compounded quarterly (i): Price of security : a/i i.e 4.5/0.01625 Price of security is : $ 276.92 6.50% 1.625% Answer to Q.38 Month Amt. Due int. paid remaining bal. 1 $250,000.00 $1,104.17 $950.00 $250,154.17 2 $250,154.17 $1,104.85 $950.00 $250,309.01 3 $250,309.01 $1,105.53 $950.00 $250,464.55 4 $250,464.55 $1,106.22 $950.00 $250,620.76 5 $250,620.76 $1,106.91 $950.00 $250,777.67 6 $250,777.67 $1,107.60 $950.00 $250,935.27 7 $250,935.27 $1,108.30 $950.00 $251,093.57 8 $251,093.57 $1,109.00 $950.00 $251,252.57 9 $251,252.57 $1,109.70 $950.00 $251,412.27 10 $251,412.27 $1,110.40 $950.00 $251,572.67 11 $251,572.67 $1,111.11 $950.00 $251,733.78 12 $251,733.78 $1,111.82 $950.00 $251,895.61 13 $251,895.61 $1,112.54 $950.00 $252,058.15 14 $252,058.15 $1,113.26 $950.00 $252,221.40 15 $252,221.40 $1,113.98 $950.00 $252,385.38 16 $252,385.38 $1,114.70 $950.00 $252,550.08 17 $252,550.08 $1,115.43 $950.00 $252,715.51 18 $252,715.51 $1,116.16 $950.00 $252,881.67 19 $252,881.67 $1,116.89 $950.00 $253,048.57 20 $253,048.57 $1,117.63 $950.00 $253,216.20 21 $253,216.20 $1,118.37 $950.00 $253,384.57 22 $253,384.57 $1,119.12 $950.00 $253,553.69 23 $253,553.69 $1,119.86 $950.00 $253,723.55 24 $253,723.55 $1,120.61 $950.00 $253,894.16 25 $253,894.16 $1,121.37 $950.00 $254,065.53 26 $254,065.53 $1,122.12 $950.00 $254,237.65 27 $254,237.65 $1,122.88 $950.00 $254,410.53 28 $254,410.53 $1,123.65 $950.00 $254,584.18 29 $254,584.18 $1,124.41 $950.00 $254,758.59 30 $254,758.59 $1,125.18 $950.00 $254,933.77 31 $254,933.77 $1,125.96 $950.00 $255,109.73 32 $255,109.73 $1,126.73 $950.00 $255,286.47 33 $255,286.47 $1,127.52 $950.00 $255,463.98 34 $255,463.98 $1,128.30 $950.00 $255,642.28 35 $255,642.28 $1,129.09 $950.00 $255,821.37 36 $255,821.37 $1,129.88 $950.00 $256,001.25 37 $256,001.25 $1,130.67 $950.00 $256,181.92 38 $256,181.92 $1,131.47 $950.00 $256,363.39 39 $256,363.39 $1,132.27 $950.00 $256,545.66 40 $256,545.66 $1,133.08 $950.00 $256,728.74 41 $256,728.74 $1,133.89 $950.00 $256,912.62 42 $256,912.62 $1,134.70 $950.00 $257,097.32 43 $257,097.32 $1,135.51 $950.00 $257,282.83 44 $257,282.83 $1,136.33 $950.00 $257,469.16 45 $257,469.16 $1,137.16 $950.00 $257,656.32 46 $257,656.32 $1,137.98 $950.00 $257,844.30 47 $257,844.30 $1,138.81 $950.00 $258,033.11 48 $258,033.11 $1,139.65 $950.00 $258,222.76 49 $258,222.76 $1,140.48 $950.00 $258,413.25 50 $258,413.25 $1,141.33 $950.00 $258,604.57 51 $258,604.57 $1,142.17 $950.00 $258,796.74 52 $258,796.74 $1,143.02 $950.00 $258,989.76 53 $258,989.76 $1,143.87 $950.00 $259,183.63 54 $259,183.63 $1,144.73 $950.00 $259,378.36 55 $259,378.36 $1,145.59 $950.00 $259,573.95 56 $259,573.95 $1,146.45 $950.00 $259,770.40 57 $259,770.40 $1,147.32 $950.00 $259,967.72 58 $259,967.72 $1,148.19 $950.00 $260,165.91 59 $260,165.91 $1,149.07 $950.00 $260,364.97 60 $260,364.97 $1,149.95 $950.00 $260,564.92 61 $260,564.92 $1,150.83 $950.00 $260,765.75 62 $260,765.75 $1,151.72 $950.00 $260,967.46 63 $260,967.46 $1,152.61 $950.00 $261,170.07 64 $261,170.07 $1,153.50 $950.00 $261,373.57 65 $261,373.57 $1,154.40 $950.00 $261,577.97 66 $261,577.97 $1,155.30 $950.00 $261,783.27 67 $261,783.27 $1,156.21 $950.00 $261,989.48 68 $261,989.48 $1,157.12 $950.00 $262,196.60 69 $262,196.60 $1,158.03 $950.00 $262,404.64 70 $262,404.64 $1,158.95 $950.00 $262,613.59 71 $262,613.59 $1,159.88 $950.00 $262,823.47 72 $262,823.47 $1,160.80 $950.00 $263,034.27 73 $263,034.27 $1,161.73 $950.00 $263,246.01 74 $263,246.01 $1,162.67 $950.00 $263,458.68 75 $263,458.68 $1,163.61 $950.00 $263,672.29 76 $263,672.29 $1,164.55 $950.00 $263,886.84 77 $263,886.84 $1,165.50 $950.00 $264,102.34 78 $264,102.34 $1,166.45 $950.00 $264,318.79 79 $264,318.79 $1,167.41 $950.00 $264,536.20 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 $264,536.20 $264,754.57 $264,973.90 $265,194.20 $265,415.48 $265,637.73 $265,860.96 $266,085.18 $266,310.39 $266,536.59 $266,763.80 $266,992.00 $267,221.22 $267,451.44 $267,682.69 $267,914.95 $268,148.24 $268,382.57 $268,617.92 $268,854.32 $269,091.76 $269,330.25 $269,569.79 $269,810.39 $270,052.05 $270,294.78 $270,538.58 $270,783.46 $271,029.42 $271,276.47 $271,524.61 $271,773.84 $272,024.17 $272,275.61 $272,528.17 $272,781.83 $273,036.62 $273,292.53 $273,549.57 $273,807.75 $274,067.07 $274,327.53 $274,589.14 $274,851.91 $275,115.84 $275,380.94 $275,647.20 $275,914.64 $276,183.27 $276,453.08 $276,724.08 $276,996.27 $277,269.67 $277,544.28 $277,820.10 $278,097.14 $278,375.40 $278,654.90 $278,935.62 $279,217.59 $279,500.80 $279,785.26 $280,070.98 $280,357.96 $280,646.21 $280,935.73 $281,226.53 $281,518.61 $281,811.98 $282,106.65 $282,402.62 $282,699.90 $282,998.49 $283,298.40 $283,599.64 $283,902.20 $284,206.11 $284,511.35 $284,817.94 $285,125.89 $285,435.19 $1,168.37 $1,169.33 $1,170.30 $1,171.27 $1,172.25 $1,173.23 $1,174.22 $1,175.21 $1,176.20 $1,177.20 $1,178.21 $1,179.21 $1,180.23 $1,181.24 $1,182.27 $1,183.29 $1,184.32 $1,185.36 $1,186.40 $1,187.44 $1,188.49 $1,189.54 $1,190.60 $1,191.66 $1,192.73 $1,193.80 $1,194.88 $1,195.96 $1,197.05 $1,198.14 $1,199.23 $1,200.33 $1,201.44 $1,202.55 $1,203.67 $1,204.79 $1,205.91 $1,207.04 $1,208.18 $1,209.32 $1,210.46 $1,211.61 $1,212.77 $1,213.93 $1,215.09 $1,216.27 $1,217.44 $1,218.62 $1,219.81 $1,221.00 $1,222.20 $1,223.40 $1,224.61 $1,225.82 $1,227.04 $1,228.26 $1,229.49 $1,230.73 $1,231.97 $1,233.21 $1,234.46 $1,235.72 $1,236.98 $1,238.25 $1,239.52 $1,240.80 $1,242.08 $1,243.37 $1,244.67 $1,245.97 $1,247.28 $1,248.59 $1,249.91 $1,251.23 $1,252.57 $1,253.90 $1,255.24 $1,256.59 $1,257.95 $1,259.31 $1,260.67 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $264,754.57 $264,973.90 $265,194.20 $265,415.48 $265,637.73 $265,860.96 $266,085.18 $266,310.39 $266,536.59 $266,763.80 $266,992.00 $267,221.22 $267,451.44 $267,682.69 $267,914.95 $268,148.24 $268,382.57 $268,617.92 $268,854.32 $269,091.76 $269,330.25 $269,569.79 $269,810.39 $270,052.05 $270,294.78 $270,538.58 $270,783.46 $271,029.42 $271,276.47 $271,524.61 $271,773.84 $272,024.17 $272,275.61 $272,528.17 $272,781.83 $273,036.62 $273,292.53 $273,549.57 $273,807.75 $274,067.07 $274,327.53 $274,589.14 $274,851.91 $275,115.84 $275,380.94 $275,647.20 $275,914.64 $276,183.27 $276,453.08 $276,724.08 $276,996.27 $277,269.67 $277,544.28 $277,820.10 $278,097.14 $278,375.40 $278,654.90 $278,935.62 $279,217.59 $279,500.80 $279,785.26 $280,070.98 $280,357.96 $280,646.21 $280,935.73 $281,226.53 $281,518.61 $281,811.98 $282,106.65 $282,402.62 $282,699.90 $282,998.49 $283,298.40 $283,599.64 $283,902.20 $284,206.11 $284,511.35 $284,817.94 $285,125.89 $285,435.19 $285,745.86 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 208 209 210 211 212 213 214 215 216 217 218 219 220 221 222 223 224 225 226 227 228 229 230 231 232 233 234 235 236 237 238 239 240 241 $285,745.86 $286,057.91 $286,371.33 $286,686.14 $287,002.34 $287,319.93 $287,638.93 $287,959.33 $288,281.15 $288,604.39 $288,929.06 $289,255.17 $289,582.71 $289,911.70 $290,242.14 $290,574.05 $290,907.41 $291,242.26 $291,578.58 $291,916.38 $292,255.68 $292,596.47 $292,938.77 $293,282.59 $293,627.92 $293,974.78 $294,323.16 $294,673.09 $295,024.56 $295,377.59 $295,732.17 $296,088.32 $296,446.05 $296,805.35 $297,166.24 $297,528.73 $297,892.81 $298,258.50 $298,625.81 $298,994.74 $299,365.30 $299,737.50 $300,111.34 $300,486.83 $300,863.98 $301,242.80 $301,623.29 $302,005.46 $302,389.31 $302,774.87 $303,162.12 $303,551.09 $303,941.77 $304,334.18 $304,728.33 $305,124.21 $305,521.84 $305,921.23 $306,322.38 $306,725.30 $307,130.01 $307,536.50 $307,944.79 $308,354.87 $308,766.78 $309,180.50 $309,596.04 $310,013.43 $310,432.65 $310,853.73 $311,276.67 $311,701.47 $312,128.15 $312,556.72 $312,987.18 $313,419.54 $313,853.81 $314,289.99 $314,728.11 $315,168.16 $315,610.15 $1,262.04 $1,263.42 $1,264.81 $1,266.20 $1,267.59 $1,269.00 $1,270.41 $1,271.82 $1,273.24 $1,274.67 $1,276.10 $1,277.54 $1,278.99 $1,280.44 $1,281.90 $1,283.37 $1,284.84 $1,286.32 $1,287.81 $1,289.30 $1,290.80 $1,292.30 $1,293.81 $1,295.33 $1,296.86 $1,298.39 $1,299.93 $1,301.47 $1,303.03 $1,304.58 $1,306.15 $1,307.72 $1,309.30 $1,310.89 $1,312.48 $1,314.09 $1,315.69 $1,317.31 $1,318.93 $1,320.56 $1,322.20 $1,323.84 $1,325.49 $1,327.15 $1,328.82 $1,330.49 $1,332.17 $1,333.86 $1,335.55 $1,337.26 $1,338.97 $1,340.68 $1,342.41 $1,344.14 $1,345.88 $1,347.63 $1,349.39 $1,351.15 $1,352.92 $1,354.70 $1,356.49 $1,358.29 $1,360.09 $1,361.90 $1,363.72 $1,365.55 $1,367.38 $1,369.23 $1,371.08 $1,372.94 $1,374.81 $1,376.68 $1,378.57 $1,380.46 $1,382.36 $1,384.27 $1,386.19 $1,388.11 $1,390.05 $1,391.99 $1,393.94 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $286,057.91 $286,371.33 $286,686.14 $287,002.34 $287,319.93 $287,638.93 $287,959.33 $288,281.15 $288,604.39 $288,929.06 $289,255.17 $289,582.71 $289,911.70 $290,242.14 $290,574.05 $290,907.41 $291,242.26 $291,578.58 $291,916.38 $292,255.68 $292,596.47 $292,938.77 $293,282.59 $293,627.92 $293,974.78 $294,323.16 $294,673.09 $295,024.56 $295,377.59 $295,732.17 $296,088.32 $296,446.05 $296,805.35 $297,166.24 $297,528.73 $297,892.81 $298,258.50 $298,625.81 $298,994.74 $299,365.30 $299,737.50 $300,111.34 $300,486.83 $300,863.98 $301,242.80 $301,623.29 $302,005.46 $302,389.31 $302,774.87 $303,162.12 $303,551.09 $303,941.77 $304,334.18 $304,728.33 $305,124.21 $305,521.84 $305,921.23 $306,322.38 $306,725.30 $307,130.01 $307,536.50 $307,944.79 $308,354.87 $308,766.78 $309,180.50 $309,596.04 $310,013.43 $310,432.65 $310,853.73 $311,276.67 $311,701.47 $312,128.15 $312,556.72 $312,987.18 $313,419.54 $313,853.81 $314,289.99 $314,728.11 $315,168.16 $315,610.15 $316,054.10 242 243 244 245 246 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 263 264 265 266 267 268 269 270 271 272 273 274 275 276 277 278 279 280 281 282 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 299 300 301 302 303 304 305 306 307 308 309 310 311 312 313 314 315 316 317 318 319 320 321 322 $316,054.10 $316,500.00 $316,947.88 $317,397.73 $317,849.57 $318,303.40 $318,759.25 $319,217.10 $319,676.97 $320,138.88 $320,602.83 $321,068.82 $321,536.88 $322,007.00 $322,479.20 $322,953.48 $323,429.86 $323,908.34 $324,388.93 $324,871.65 $325,356.50 $325,843.49 $326,332.63 $326,823.94 $327,317.41 $327,813.06 $328,310.90 $328,810.94 $329,313.19 $329,817.66 $330,324.35 $330,833.28 $331,344.46 $331,857.90 $332,373.61 $332,891.59 $333,411.86 $333,934.43 $334,459.31 $334,986.50 $335,516.03 $336,047.89 $336,582.10 $337,118.67 $337,657.61 $338,198.94 $338,742.65 $339,288.76 $339,837.29 $340,388.23 $340,941.62 $341,497.44 $342,055.72 $342,616.47 $343,179.69 $343,745.40 $344,313.61 $344,884.33 $345,457.57 $346,033.34 $346,611.65 $347,192.52 $347,775.95 $348,361.96 $348,950.56 $349,541.76 $350,135.57 $350,732.00 $351,331.07 $351,932.78 $352,537.15 $353,144.19 $353,753.91 $354,366.32 $354,981.44 $355,599.28 $356,219.84 $356,843.14 $357,469.20 $358,098.02 $358,729.62 $1,395.91 $1,397.88 $1,399.85 $1,401.84 $1,403.84 $1,405.84 $1,407.85 $1,409.88 $1,411.91 $1,413.95 $1,416.00 $1,418.05 $1,420.12 $1,422.20 $1,424.28 $1,426.38 $1,428.48 $1,430.60 $1,432.72 $1,434.85 $1,436.99 $1,439.14 $1,441.30 $1,443.47 $1,445.65 $1,447.84 $1,450.04 $1,452.25 $1,454.47 $1,456.69 $1,458.93 $1,461.18 $1,463.44 $1,465.71 $1,467.98 $1,470.27 $1,472.57 $1,474.88 $1,477.20 $1,479.52 $1,481.86 $1,484.21 $1,486.57 $1,488.94 $1,491.32 $1,493.71 $1,496.11 $1,498.53 $1,500.95 $1,503.38 $1,505.83 $1,508.28 $1,510.75 $1,513.22 $1,515.71 $1,518.21 $1,520.72 $1,523.24 $1,525.77 $1,528.31 $1,530.87 $1,533.43 $1,536.01 $1,538.60 $1,541.20 $1,543.81 $1,546.43 $1,549.07 $1,551.71 $1,554.37 $1,557.04 $1,559.72 $1,562.41 $1,565.12 $1,567.83 $1,570.56 $1,573.30 $1,576.06 $1,578.82 $1,581.60 $1,584.39 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $316,500.00 $316,947.88 $317,397.73 $317,849.57 $318,303.40 $318,759.25 $319,217.10 $319,676.97 $320,138.88 $320,602.83 $321,068.82 $321,536.88 $322,007.00 $322,479.20 $322,953.48 $323,429.86 $323,908.34 $324,388.93 $324,871.65 $325,356.50 $325,843.49 $326,332.63 $326,823.94 $327,317.41 $327,813.06 $328,310.90 $328,810.94 $329,313.19 $329,817.66 $330,324.35 $330,833.28 $331,344.46 $331,857.90 $332,373.61 $332,891.59 $333,411.86 $333,934.43 $334,459.31 $334,986.50 $335,516.03 $336,047.89 $336,582.10 $337,118.67 $337,657.61 $338,198.94 $338,742.65 $339,288.76 $339,837.29 $340,388.23 $340,941.62 $341,497.44 $342,055.72 $342,616.47 $343,179.69 $343,745.40 $344,313.61 $344,884.33 $345,457.57 $346,033.34 $346,611.65 $347,192.52 $347,775.95 $348,361.96 $348,950.56 $349,541.76 $350,135.57 $350,732.00 $351,331.07 $351,932.78 $352,537.15 $353,144.19 $353,753.91 $354,366.32 $354,981.44 $355,599.28 $356,219.84 $356,843.14 $357,469.20 $358,098.02 $358,729.62 $359,364.01 323 324 325 326 327 328 329 330 331 332 333 334 335 336 337 338 339 340 341 342 343 344 345 346 347 348 349 350 351 352 353 354 355 356 357 358 359 360 $359,364.01 $360,001.20 $360,641.21 $361,284.04 $361,929.71 $362,578.23 $363,229.62 $363,883.89 $364,541.04 $365,201.10 $365,864.07 $366,529.97 $367,198.81 $367,870.60 $368,545.36 $369,223.11 $369,903.84 $370,587.58 $371,274.35 $371,964.14 $372,656.98 $373,352.88 $374,051.86 $374,753.92 $375,459.08 $376,167.36 $376,878.77 $377,593.32 $378,311.02 $379,031.89 $379,755.95 $380,483.21 $381,213.67 $381,947.37 $382,684.30 $383,424.49 $384,167.95 $384,914.69 $1,587.19 $1,590.01 $1,592.83 $1,595.67 $1,598.52 $1,601.39 $1,604.26 $1,607.15 $1,610.06 $1,612.97 $1,615.90 $1,618.84 $1,621.79 $1,624.76 $1,627.74 $1,630.74 $1,633.74 $1,636.76 $1,639.80 $1,642.84 $1,645.90 $1,648.98 $1,652.06 $1,655.16 $1,658.28 $1,661.41 $1,664.55 $1,667.70 $1,670.87 $1,674.06 $1,677.26 $1,680.47 $1,683.69 $1,686.93 $1,690.19 $1,693.46 $1,696.74 $1,700.04 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $950.00 $0.00 $360,001.20 $360,641.21 $361,284.04 $361,929.71 $362,578.23 $363,229.62 $363,883.89 $364,541.04 $365,201.10 $365,864.07 $366,529.97 $367,198.81 $367,870.60 $368,545.36 $369,223.11 $369,903.84 $370,587.58 $371,274.35 $371,964.14 $372,656.98 $373,352.88 $374,051.86 $374,753.92 $375,459.08 $376,167.36 $376,878.77 $377,593.32 $378,311.02 $379,031.89 $379,755.95 $380,483.21 $381,213.67 $381,947.37 $382,684.30 $383,424.49 $384,167.95 $384,914.69 $386,614.73 Hence, To keep the monthly payment of dollar 950, Balloon payment at the end of 30th year will be dollar 386,641.73 Answer to Q.58 APR = 6 % Monthly Rate = 6/12 = 0.5 Note 1: It is assumed that rate are monthly compounded for the sake of simplicity. Lease Option Month 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 Payment DF @ 0.5 % PV 1500 1 1500 405 0.995 402.975 405 0.99 400.95 405 0.985 398.925 405 0.98 396.9 405 0.975 394.875 405 0.97 392.85 405 0.965 390.825 405 0.96 388.8 405 0.955 386.775 405 0.95 384.75 405 0.945 382.725 405 0.94 380.7 405 0.935 378.675 405 0.93 376.65 405 0.925 374.625 405 0.92 372.6 405 0.915 370.575 405 0.91 368.55 405 0.905 366.525 405 0.9 364.5 405 0.895 362.475 405 0.89 360.45 405 0.885 358.425 405 0.88 356.4 405 0.875 354.375 405 0.87 352.35 405 0.865 350.325 405 0.86 348.3 405 0.855 346.275 405 0.85 344.25 405 0.845 342.225 405 0.84 340.2 405 0.835 338.175 405 0.83 336.15 405 0.825 334.125 405 0.82 332.1 Present Value = 14731.35 Present value of lease option = 14731.35 present value of Loan option = 31000 + 20000 x .8396 = 47792 The customer should lease the car as lease option is very cheaper. Answer to Q.66 Year payment DF @ 11% Present Value 1 $500.00 0.900900901 $450.45 2 $600.00 0.811622433 $486.97 3 $700.00 0.731191381 $511.83 4 $800.00 0.658730974 $526.98 5 $900.00 0.593451328 $534.11 6 $1,000.00 0.534640836 $534.64 Present Value of all 6 Payments $3,044.99 First 6 year Int. rate is 11% so, Value at the end of 6 year= 3044.98688*1.11^6 = $5,695.39 Int. rate for remaining 59 year is 7% So, Value at the end of 65 year should be = 5695.393*1.07^59 = $308,437.08 Since the Insurance Co. is paying at the end of 65th year only dollar 275,000, which is less then dollar 308,437.1, the policy is not worth buying. Project A Year 0 1 2 3 Project B Cash Flow $ (15,000.00) $ 9,500.00 $ 6,000.00 $ 2,400.00 Payback period = Cumulative CF $ (15,000.00) $ (5,500.00) $ 500.00 $ 2,900.00 Year 0 1 2 3 1.9166666667 Cash Flow $ (18,000.00) $ 10,500.00 $ 7,000.00 $ 6,000.00 Cumulative CF $ (18,000.00) $ (7,500.00) $ (500.00) $ 5,500.00 Payback period = 2.0833333333 Year DF @ 15% So, Project A should be accepted NPV Approach Year 0 1 2 3 Cash Flow $ (15,000.00) $ 9,500.00 $ 6,000.00 $ 2,400.00 DF @ 15% 1 0.8695652174 0.7561436673 0.6575162324 PV of CF $ (15,000.00) $ 8,260.87 $ 4,536.86 $ 1,578.04 $ (624.23) Since NPV under project B is Positive, Project B should be accepted. 0 1 2 3 Cash Flow $ (18,000.00) $ 10,500.00 $ 7,000.00 $ 6,000.00 1 0.869565217 0.7561436673 0.657516232 PV of CF $ (18,000.00) $ 9,130.43 $ 5,293.01 $ 3,945.10 $ 368.54 Answer to Q.11 A. Project A Let IRR be 15% Year Cash Flow 0 $ (950,000.00) 1 $ 370,000.00 2 $ 510,000.00 3 $ 420,000.00 Let IRR be 19% Year Cash Flow 0 $ (950,000.00) 1 $ 370,000.00 2 $ 510,000.00 3 $ 420,000.00 DF @ 15% 1 0.869565217 0.756143667 0.657516232 DF @ 19% 1 0.840336134 0.706164819 0.593415814 PV of CF $ (950,000.00) $ 321,739.13 $ 385,633.27 $ 276,156.82 $ 33,529.22 PV of CF $ (950,000.00) $ 310,924.37 $ 360,144.06 $ 249,234.64 $ (29,696.93) Project B Let IRR be 15% Year Cash Flow 0 $ (1,850,000.00) 1 $ 900,000.00 2 $ 800,000.00 3 $ 750,000.00 Let IRR be 19% Year Cash Flow 0 $ (1,850,000.00) 1 $ 900,000.00 2 $ 800,000.00 3 $ 750,000.00 Interpolating 15% & 19% DF @ 15% 1 0.869565217 0.756143667 0.657516232 DF @ 19% 1 0.840336134 0.706164819 0.593415814 PV of CF $ (1,850,000.00) $ 782,608.70 $ 604,914.93 $ 493,137.17 $ 30,660.80 PV of CF $ (1,850,000.00) $ 756,302.52 $ 564,931.86 $ 445,061.86 $ (83,703.76) Interpolating 15% & 19% .15-IRR .15-.19 = $ 33,529.22 $ 63,226.15 .15-IRR .15-.19 = $ $ 30,660.80 114,364.57 .15-IRR = -0.021212248 .15-IRR = -0.0107238823 IRR = 17.12122477 % IRR = 16.0723882264 % As IRR in Project A is higher, Project A should be accepted. B. Incremental IRR Approach Let IRR be 15% Year 0 1 2 3 Incremental Cash Flow $ (900,000.00) $ 530,000.00 $ 290,000.00 $ 330,000.00 DF @ 15% 1 0.869565217 0.756143667 0.657516232 PV of CF $ (900,000.00) $ 460,869.57 $ 219,281.66 $ 216,980.36 $ (2,868.41) Let IRR be 19% Year 0 1 2 3 Incremental Cash Flow $ (900,000.00) $ 530,000.00 $ 290,000.00 $ 330,000.00 DF @ 19% 1 0.840336134 0.706164819 0.593415814 PV of CF $ (900,000.00) $ 445,378.15 $ 204,787.80 $ 195,827.22 $ (54,006.83) Interpolating 15% & 19% .15-IRR .15-.19 = $ (2,868.41) $ 51,138.42 .15-IRR = 0.002243647 IRR = 14.77563525 % Since Incremental IRR of Project B is less than IRR of Project A, Project A should be accepted C. Year 0 1 2 3 Cash Flow $ (950,000.00) $ 370,000.00 $ 510,000.00 $ 420,000.00 DF @ 14% 1 0.877192982 0.769467528 0.674971516 NPV= PV of CF $ (950,000.00) $ 324,561.40 $ 392,428.44 $ 283,488.04 $ 50,477.88 Year 0 1 2 3 Cash Flow $ (1,850,000.00) $ 900,000.00 $ 800,000.00 $ 750,000.00 Since, NPV of Project B is more, Project B should be accepted. No, It is not consistent with IRR rule as Incremental IRR of project B is showing lower return. DF @ 14% 1 0.877192982 0.769467528 0.674971516 NPV= PV of CF $ (1,850,000.00) $ 789,473.68 $ 615,574.02 $ 506,228.64 $ 61,276.34 Answer to Q.15 A. Year Ranking Project on the basis of Profitability Index. (Figures in Lakh) DF @ 10% CDMA G4 WIFI 1 0.90909091 $ 10.00 $ 9.09 $ 16.36 2 0.82644628 $ 6.20 $ 20.66 $ 26.45 3 0.7513148 $ 1.88 $ 15.03 $ 37.57 PV $ 18.08 $ 44.78 $ 80.38 Initial Inv. $ 8.00 $ 12.00 $ 20.00 Profitability Index = Rank B. Year 0 1 2 3 PV Initial Inv. 2.26 $ 3.73 $ 3 2 4.02 1 Ranking Project on the basis of NPV. (Figures in Lakh) DF @ 10% CDMA G4 WIFI 1 $ (8.00) $ (12.00) $ (20.00) 0.90909091 $ 10.00 $ 9.09 $ 16.36 0.82644628 $ 6.20 $ 20.66 $ 26.45 0.7513148 $ 1.88 $ 15.03 $ 37.57 NPV $ 10.08 $ 32.78 $ 60.38 Rank C. $ = 3 2 1 Recommendation Since both NPV & PI of WIFI is highest, WIFI should only be implemented as the investment amount is limited to dollar 20. Answer to Q.2 A. Incremental Net Income Year 0 a Investment $ (24,000.00) b Net WC $ (300.00) c Revenue d Op. Cost e Dep. Incremental Net Income $ (24,300.00) B. C. 1 $ $ 50.00 $ 12,500.00 $ (2,700.00) $ 6,000.00 $ 15,851.00 Incremental Cash flow of Investment. Year 0 Investment $ (24,000.00) $ $ $ $ $ $ $ 2 50.00 500.00 (100.00) 452.00 1 - 3 (100.00) 500.00 (100.00) 303.00 4 ### $ 300.00 $ (3,000.00) $ 700.00 ### $ (1,996.00) 3 4 ### 3 $ $ $ $ $ $ 4 ### 0 10500 2100 6000 $ 18,604.00 0.68301346 $ 12,706.78 2 $ - $ - NPV Year Investment Net WC Revenue Op. Cost Dep. 0 $ (24,000.00) $ 300 1 DF @ 12% PV 350 12500 2700 6000 $ (23,700.00) $ 21,551.00 1 0.909090909 $ (23,700.00) $ 19,591.82 NPV $ 44,004.46 2 $ 400 13000 2800 6000 $ 22,202.00 0.826446281 $ 18,348.76 $ 300 13500 2900 6000 $ 22,703.00 0.751314801 $ 17,057.10 Year Investment W. Cap 0 $ (365,000.00) $ (10,000.00) 1 2 3 4 5 $ 10,000.00 Net Revenue $ $ $ $ $ 175,000.00 180,250.00 185,657.50 191,227.23 196,964.04 Dep. $ 64,000.00 $ 64,000.00 $ 64,000.00 $ 64,000.00 $ 64,000.00 Salvage Tax $ $ 37,740.00 $ 54,825.00 $ 41,363.55 $ 43,257.26 $ 45,000.00 $ 60,507.77 Post Tax CF $ (375,000.00) $ 137,260.00 $ 125,425.00 $ 144,293.95 $ 147,969.97 $ 191,456.27 Year Dep. Salvage operating Cost Tax Saving Net Cost DF @ 12% PV 1 25333.33 8600 11,537.33 22,396.00 0.892857 19,996.43 2 25333.33 8600 11,537.33 22,396.00 0.797194 17,853.95 3 25333.33 -18000 8600 5,417.33 10,516.00 0.71178 7,485.08 45,335.46 so Annual Eq. cost = 15,111.82 x Answer to question 9 Sale price Less: Variable Cost Contribution per unit: 35.00 6.10 28.90 Total Fixed Costs = 375000 + 120000 i.e. 495,000.00 Acc