Question
Question 7 PART A The CEO has advised the Finance Manager that in addition to the two (2) projects evaluated in question 4, the company
Question 7
PART A
The CEO has advised the Finance Manager that in addition to the two (2) projects evaluated in question 4, the company would like to invest in a possible third project over the upcoming year. However, to do this, the company will have to borrow a 3-year $500,000 loan at an interest rate of 6% per annum to fund the project.
Required:
- Calculate the monthly repayment on this intended loan.
- Prepare the companys Amortization Schedule for the first three (3) months of this loan, clearly showing the interest and principal payments.
- The Finance Manager is also considering utilizing the proceeds of a short-term investment that is due to mature in October 2021 (instead of the borrowing the full amount of the loan). If Virtuoso Corporation was investing $3,750 monthly into an account over 5 years at a rate of 9% compounded monthly, compute the value of this investment at the end of 5 years.
PART B
A companys Return on Equity (ROE) is affected by three things: operating efficiency, asset use efficiency and financial leverage. The decomposition of ROE via the Du Pont Identity approach is a convenient way of systematically approaching financial statement analysis. If ROE is unsatisfactory by some measure, then the Du Pont identity tells you where to start looking.
Required: Calculate Virtuoso Corporations Return on Equity Using the Du Pont Identity for the year ended June 30, 2021.
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