Question 1 (25 marks) Use the following information for parts A to B. Sunny Investment Corporation ("Sunny") would like to put its spare cash of $10 million in a bank deposit account for 4 years. Bank A is offering a deposit interest rate of 6% pa. The interest is payable at the end of each year for 4 years. A. Assuming Sunny will not withdraw any capital of interest from the bank account and let the deposit eam compound interest, calculate the amount Sunny will have in the bank account at the end of 4 year. (5 marks) B. Bank B is willing to offer Sunny an interest rate of 5.9% pa, but the interest will be compounded every three months. Calculate the Effective Interest rate. Should Sunny deposit in Bank B instead of Bank A? Explain your answer. (5 marks) C. Sunny is considering invest in project Sky. The present value of the cash flows from investment project Sky is $10,499,034.70 when discounted at 8%p. . The company expects to receive cash flows from the investment project as shown in the following table. Calculate the cash flow to be received at the end of year 3. (5 marks) D. Sunny is also considering another investment project Moon. The project can generate a constant cash flow of $200,000 at the end of each year forever. Sunny's finuncial controller calculated the present value of the cash flows from investment project Moon to be \$2,857,143. Calculate the discount rate the financial controller used in his calculation. (5 marks) E. Suppose Sunny started a savings plan that guaranteed a rate of return of 8% p.a. ten years ago. Sunny has been saving \$1.2 million at the end of each year for 10 years. Assuming Sunny will not take out any capital or interest and the accumulated amount will be compounded annually, calculate the total amount that would be accumulated in the savings plan at the end of year 10 . (5 marks) Question 2 ( 25 marks) Ronald Corporation ("Ronald') is engaged in selling of toy guns. The company has a total of 20,000 shares of stock outstanding. The balance sheet and income statement of Ronald are shown below. A. Calculate Ronald's net profit margin. (4 marks) B. Calculate Ronald's earnings per share. (4 marks) C. Calculate Ronald's net working capital. (4 marks) D. Calculate Ronald's day's sales in receivables. (4 marks) E. Calculate Ronald's times interest earned. (4 marks) F. Ronald's day's sales in receivables this year is lower than last year. Does this mean the ratio has improved or deteriorated? Explain. (2 marks) G. Ronald's times interest earned this year is higher than last year. Does this mean the ratio has improved or deteriorated? Explain. (2 marks) H. Sometimes the financial ratios of different years of the same company are compared to analyze the company's financial situation (as in part F\&G). What is this type of analysis called? (1 marks)
