Show your work on paper or excl. You are offered the opportunity of lifetime; a financially challenged property developer needs to borrow funds quiddy to build a hospital in the emirate. He is willing to double your money and pay you back in around 3 manths. He is offering collateral of uncut diamonds, but the collateral will remain in the vault of a local jewellers. You don't believe that you will get your money back in 3 months but think that the developer will possibly pay you back in 12 months and most likely within 36 months. You are trying to decide if the return is worth the risk You estimate the following probabilities Scenario Outcome Probability 1 100,000 Payback in 12 mos. 20% 2 100,000 Payback in 24 mos. 20% 3 100,000 Payback in 36 mos. 20% 4 250,000 of diamond in 48 mos 20% 5 0 receive nothing. 20% You are willing to offer 50,000 and will (hopefully) receive 100,000 upon payoff. You estimate the uncut diamonds are valued at 250,000 a) What is the estimated internal rate of return on investment? Is there more than one IRR? b) You decide to borrow the 20,000 on a credit card and 30,000 on a payday loan. The credit card quoted interest is 18% compounded monthly. The payday loan quoted interest rate is 5296 compounded weekly. What is the effective annual rate (EAR) for the credit card and loan? c) A recession hits after 12 months and you realise that you are unlikely to be repaid. Calculate the outstanding balance on the credit card and loan at 12 months and the monthly payment required on the credit card and weekly payment required on the loan to pay off the balance by the end of 48 months (36 months' time). d) After repaying the balance of your borrowings, to your great surprise 100% of the 100,000 outstanding shares of the company that owns the uncut diamonds, Sparkles pic is transferred to your name. The diamonds need to be cut and polished. The cutting will cost around 55,000 and the polishing around 35,000. The investment bank organising the rights offer will charge Sparkles 10,000 in fees. You do not have any cash left and want pay for the above expenses or buy additional shares via a rights offering. You want to maintain majority control (>50%) of shares outstanding and raise at least 25,000 from selling all of your rights, is this possible? How would you structure the rights offer to maximize your ownership while raising 25,000 from the sale of rights? f) How would implementing Modigini and Miller Proposition it with taxes change your answer to de? Would you propose an alternative to the rights offer? 005 NOOB PSA U/18 000 Murthern HYGET Sets OG EN Wort DATE on/EX SAYETT HYST! X/USD 52 SEET 10, 2017 29.0 110 1.100 CE TO MANDA NONO DOET SPT ET VETE ottanut 10.2020 34258 1 02020 35064 100 301.44 2000 MONI De 3090 3:20.93 1919 05:20 89.70 2000 17:20 2000 2566 03.18 2.2020 305 92.45 012000 222.30 936 12.2015 1 NG NES NOTE WSTE NE 1266 1296 1149 150 7.1 610N TE NEO NEO NOO MOS NESIO NIE 1.625 16N 1725 1598 1.487 NEE ETC Itt DE 11.446 9.147 Sos SET 24.04 372 CE NET WAST SOVE E TOC L112 109 1.064 015 15.00 11 1136 LI 7 L401 ESET DONT Isrt SOT TOVI COT 11 389 12.12 -12.30 IT HET WEST ESE 9 ST 6481 8633 ME 6 STE 4 JOON La 1556 NOST NICE: 90E w 0.986 1.096 NOD NT TET OT TECT SET DUET DET 0:05 1.110 1.225 1223 OLET OLET GET NE WID NE NOTE NI NAT ST DEL 10 2009 CETTE GEOEE RE OLE BOE SES CH ZOE 2.158 7,710 9,10 WEE BOR 56 OST SES 1.77 41 44 -16.10 SWE6 res 2916 OSTS 9115 OG 1 SI 2611 BTT TET 1.110 1.09 1036 1.086 DON 004 0.461 07 1223 1:45 GEOT sto SE20 GIOCO TE OT NEBO NOT SVE NISTE METE 65 66 TT NEE NECO 1.102 9. 30.037 11,351 2.503 RET SIIT SETT BOT tt NICE 093 1834 1717 AT 7.46 BOLT LET T6CT 200 t 7 07 37.61 2015 OL 2015 19 29722 27915 292.57 2015 1073 107 101 10 TOT TES 5 SON NO NET NIET NO NET NECT WS 4.299 157 NEUZ BRA 27.10 7.84 178 1686 050 COTO GIOCO torte TOCET ODOTT 10 1123 10 1024 0.993 vet NOVE WEIT 1100 103 1100 1054 1038 1.001 0:923 1,021 27155 Set COT TOTE LTVE WE OESTE COCO 0.83 0.6% 0603 0.542 1 260 ME T5 NES NO 9 $8 1 22 9.15 20N 0.00 276.00 223.59 0160 -7.00 -652 -37.61 0.00 255 -0.444 ODON 1.03 0.970 0996 100 SETE 000 0958 1000 0001 0.694 1000 NO Betama 52. NON Show your work on paper or excl. You are offered the opportunity of lifetime; a financially challenged property developer needs to borrow funds quiddy to build a hospital in the emirate. He is willing to double your money and pay you back in around 3 manths. He is offering collateral of uncut diamonds, but the collateral will remain in the vault of a local jewellers. You don't believe that you will get your money back in 3 months but think that the developer will possibly pay you back in 12 months and most likely within 36 months. You are trying to decide if the return is worth the risk You estimate the following probabilities Scenario Outcome Probability 1 100,000 Payback in 12 mos. 20% 2 100,000 Payback in 24 mos. 20% 3 100,000 Payback in 36 mos. 20% 4 250,000 of diamond in 48 mos 20% 5 0 receive nothing. 20% You are willing to offer 50,000 and will (hopefully) receive 100,000 upon payoff. You estimate the uncut diamonds are valued at 250,000 a) What is the estimated internal rate of return on investment? Is there more than one IRR? b) You decide to borrow the 20,000 on a credit card and 30,000 on a payday loan. The credit card quoted interest is 18% compounded monthly. The payday loan quoted interest rate is 5296 compounded weekly. What is the effective annual rate (EAR) for the credit card and loan? c) A recession hits after 12 months and you realise that you are unlikely to be repaid. Calculate the outstanding balance on the credit card and loan at 12 months and the monthly payment required on the credit card and weekly payment required on the loan to pay off the balance by the end of 48 months (36 months' time). d) After repaying the balance of your borrowings, to your great surprise 100% of the 100,000 outstanding shares of the company that owns the uncut diamonds, Sparkles pic is transferred to your name. The diamonds need to be cut and polished. The cutting will cost around 55,000 and the polishing around 35,000. The investment bank organising the rights offer will charge Sparkles 10,000 in fees. You do not have any cash left and want pay for the above expenses or buy additional shares via a rights offering. You want to maintain majority control (>50%) of shares outstanding and raise at least 25,000 from selling all of your rights, is this possible? How would you structure the rights offer to maximize your ownership while raising 25,000 from the sale of rights? f) How would implementing Modigini and Miller Proposition it with taxes change your answer to de? Would you propose an alternative to the rights offer? 005 NOOB PSA U/18 000 Murthern HYGET Sets OG EN Wort DATE on/EX SAYETT HYST! X/USD 52 SEET 10, 2017 29.0 110 1.100 CE TO MANDA NONO DOET SPT ET VETE ottanut 10.2020 34258 1 02020 35064 100 301.44 2000 MONI De 3090 3:20.93 1919 05:20 89.70 2000 17:20 2000 2566 03.18 2.2020 305 92.45 012000 222.30 936 12.2015 1 NG NES NOTE WSTE NE 1266 1296 1149 150 7.1 610N TE NEO NEO NOO MOS NESIO NIE 1.625 16N 1725 1598 1.487 NEE ETC Itt DE 11.446 9.147 Sos SET 24.04 372 CE NET WAST SOVE E TOC L112 109 1.064 015 15.00 11 1136 LI 7 L401 ESET DONT Isrt SOT TOVI COT 11 389 12.12 -12.30 IT HET WEST ESE 9 ST 6481 8633 ME 6 STE 4 JOON La 1556 NOST NICE: 90E w 0.986 1.096 NOD NT TET OT TECT SET DUET DET 0:05 1.110 1.225 1223 OLET OLET GET NE WID NE NOTE NI NAT ST DEL 10 2009 CETTE GEOEE RE OLE BOE SES CH ZOE 2.158 7,710 9,10 WEE BOR 56 OST SES 1.77 41 44 -16.10 SWE6 res 2916 OSTS 9115 OG 1 SI 2611 BTT TET 1.110 1.09 1036 1.086 DON 004 0.461 07 1223 1:45 GEOT sto SE20 GIOCO TE OT NEBO NOT SVE NISTE METE 65 66 TT NEE NECO 1.102 9. 30.037 11,351 2.503 RET SIIT SETT BOT tt NICE 093 1834 1717 AT 7.46 BOLT LET T6CT 200 t 7 07 37.61 2015 OL 2015 19 29722 27915 292.57 2015 1073 107 101 10 TOT TES 5 SON NO NET NIET NO NET NECT WS 4.299 157 NEUZ BRA 27.10 7.84 178 1686 050 COTO GIOCO torte TOCET ODOTT 10 1123 10 1024 0.993 vet NOVE WEIT 1100 103 1100 1054 1038 1.001 0:923 1,021 27155 Set COT TOTE LTVE WE OESTE COCO 0.83 0.6% 0603 0.542 1 260 ME T5 NES NO 9 $8 1 22 9.15 20N 0.00 276.00 223.59 0160 -7.00 -652 -37.61 0.00 255 -0.444 ODON 1.03 0.970 0996 100 SETE 000 0958 1000 0001 0.694 1000 NO Betama 52. NON