Question 4 (14 marks): You're the CFO of a software campany that owes $100m in 2 years to pay aff zerp coupan bonds maturing at that time. Unfortunately your firm has only 545m in assets, all in cash. However, potentially good news just arrived. Two new clients have ciffered separate cantracts that they want you to start on immediately. The -Safe' contract will require your firm ta invest $70m now and will pay bock $121m in 2 years for certairc and the - 'Risky' contract will require your firm to invest 570m now and has a 19 chance of paying back 54,840m or a 99% chance of paying back $12.1m in 2 years. Both contracts have an effective annual required return of 10% pa. Assume that the debt and equity investors are separate people and do not know or coordinate with each ather. Disregard insalvent trading rules. Question 4a (2 marks): Find the NPV of the safe contract, compared to doing nothing. Question 4b (2 marks): Find the NPV of the risky cantract, campared to doing nathing. Question 4c ( 3 marks): Are existing equity halders likely to inject the extra $25m (=70-45) in funds neaded to undertake the safe praject? Provide explanations and calculations Question 4d (3 marks): Are existing equity holders likely to want to inject the extra $25m (=70-45) in funds neoded to undertake the risky project? Pravide explanations and cakulations. Question 4 e (4 marks): If no new money will be raised from debt or equity halders and the contracts are put to a vote at the up-raming amnual general meeting, which praject da you expect to be approwed? Provide explanations and calculations. No need to repeat calculations dane in previous puestians. Disregard insolvent trading rules. Question 4 (14 marks): You're the CFO of a software campany that owes $100m in 2 years to pay aff zerp coupan bonds maturing at that time. Unfortunately your firm has only 545m in assets, all in cash. However, potentially good news just arrived. Two new clients have ciffered separate cantracts that they want you to start on immediately. The -Safe' contract will require your firm ta invest $70m now and will pay bock $121m in 2 years for certairc and the - 'Risky' contract will require your firm to invest 570m now and has a 19 chance of paying back 54,840m or a 99% chance of paying back $12.1m in 2 years. Both contracts have an effective annual required return of 10% pa. Assume that the debt and equity investors are separate people and do not know or coordinate with each ather. Disregard insalvent trading rules. Question 4a (2 marks): Find the NPV of the safe contract, compared to doing nothing. Question 4b (2 marks): Find the NPV of the risky cantract, campared to doing nathing. Question 4c ( 3 marks): Are existing equity halders likely to inject the extra $25m (=70-45) in funds neaded to undertake the safe praject? Provide explanations and calculations Question 4d (3 marks): Are existing equity holders likely to want to inject the extra $25m (=70-45) in funds neoded to undertake the risky project? Pravide explanations and cakulations. Question 4 e (4 marks): If no new money will be raised from debt or equity halders and the contracts are put to a vote at the up-raming amnual general meeting, which praject da you expect to be approwed? Provide explanations and calculations. No need to repeat calculations dane in previous puestians. Disregard insolvent trading rules
