QUESTION ONE Assuming that you borrowed ZMW60, 000 00 from a bank to finance a business project The agreement was to pay this amount in four equal annual installments that include principle and 12 interest Calculate the annual installment and draw the amortization schedule for this loan (12 Marks) You would like to buy a piece of equipment for ZMW5 million, paying 10 down payment and agreeing to pay the balance in 15 equal installments that include principal and 15 interest compounded annually on declining balance The other option is to pay interest compounded at the same rate semi annually Required Calculate the effective interest rate paid on the two options (7 Marks) Explain the difference between Annual percentage rate and Effective Annual Rate (EAR) (6 Marks) Glencar Explorations obtains contributions from its staff members each year end which it invests in fixed deposit account at 16 compound interest per annum as follows year one ZMW15,000 year two ZMW13,200 year three ZMW11,800 and year four ZMW22,500 Calculate the accumulated sum of this investment at the end of year 6 (5 Marks) Muzorewa road contractor has agreed to be paid an immediate down payment of ZMW2 5 billion to construct a road The total contract price is ZMW10 3 billion The balance will be paid in two installments with ZMW4 0 billion to be paid at the end of the year 1 and the remaining balance of ZMW3 8 billion paid at the end of year 2 Assuming that interest rates in the market were 7 20 per annum Calculate the present value of the contract if the contractor wished to be paid the whole amount today QUESTION TWO Demerger is a form of corporate restructuring in which the entity's business operations are segregated into one or more components These companies can then either operate as a separate entity to the parent company or be sold off and merged into a third company A demerger can take place through a spin out by distributed or transferring the shares in a subsidiary holding the business to company shareholders carrying out the demerger The demerger can also occur by transferring the relevant business to a new company or business to which then that company's shareholders are issued shares of new company TASK Why should Zesco Ltd be demerged, and with rational reasons, suggest suitable subsidiaries

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QUESTION ONE Assuming that you borrowed ZMW60, 000.00 from a bank to finance a business project. The agreement was to pay this amount in four

QUESTION ONE

Assuming that you borrowed ZMW60, 000.00 from a bank to finance a business project. The agreement was to pay this amount in four equal annual installments that include principle and 12% interest. Calculate the annual installment and draw the amortization schedule for this loan. (12 Marks)

You would like to buy a piece of equipment for ZMW5 million, paying 10% down payment and agreeing to pay the balance in 15 equal installments that include principal and 15% interest compounded annually on declining balance. The other option is to pay interest compounded at the same rate semi-annually.

Required:

Calculate the effective interest rate paid on the two options (7 Marks)
Explain the difference between Annual percentage rate and Effective Annual Rate (EAR). (6 Marks)

Glencar Explorations obtains contributions from its staff members each year end which it invests in fixed deposit account at 16% compound interest per annum as follows: year one ZMW15,000;year two ZMW13,200;year three ZMW11,800 and year four ZMW22,500.Calculate the accumulated sum of this investment at the end of year 6. (5 Marks)
Muzorewa road contractor has agreed to be paid an immediate down payment of ZMW2.5 billion to construct a road. The total contract price is ZMW10.3 billion.The balance will be paid in two installments with ZMW4.0 billion to be paid at the end of the year 1 and the remaining balance of ZMW3.8 billion paid at the end of year 2.

Assuming that interest rates in the market were 7.20% per annum. Calculate the present value of the contract if the contractor wished to be paid the whole amount today?

QUESTION TWO

Demerger is a form of corporate restructuring in which the entity's business operations are segregated into one or more components. These companies can then either operate as a separate entity to the parent company or be sold off and merged into a third company. A demerger can take place through a spin out by distributed or transferring the shares in a subsidiary holding the business to company shareholders carrying out the demerger. The demerger can also occur by transferring the relevant business to a new company or business to which then that company's shareholders are issued shares of new company. TASK: Why should Zesco Ltd be demerged, and with rational reasons, suggest suitable subsidiaries?