1. The McDonald Group is purchasing a piece of property for $1.2 million. Two finance companies offer McDonald different loan terms to finance the purchase. Finance company A requires McDonald to put a down payment of 20% in cash and finance the balance. The loan terms require monthly payments for 15 years at an annual percentage rate of 7.75% compounded monthly. Finance company B only requires 10% in cash for down payment, but it requires monthly payments for 15 years at an annual percentage rate of 8.00% compounded monthly. What is the amount of monthly mortgage payment for each loan?

 

1. Your child is currently 2 years old. You plan to save for your child's college education expenses by depositing 5% of your annual salary into an account that pays 6% interest compounded annually.  If your salary is $100,000 next year when you make the first deposit, and you expect your salary to grow at 4% a year after that. How much do you have saved in 16 years when your child goes to college?  

1. You are trying to plan for retirement in 20 years and currently you have $50,000 in a savings account and $80,000 in stocks.  In addition, you plan to add to your savings by depositing $10,000 per year in your savings account at the end of each of the next 20 years, until retirement.  Assume that your savings account returns 5% compounded annually and your investment in stocks will return 10% compounded annually, how much do you have at the end of 20 years? (Ignore taxes)  

 

4.   Angel Enterprise was going public in 2018. You were wondering whether the $30 per share offer price is a fair price. You decided to use discounted cash flow approach to value the company's stock. You gathered the following data:

 

Year	FCF	Other Data
2019	$600,000	Growth rate of FCF beyond 2023 = 3%
2020	$900,000	Weighted Average Cost of Capital (WACC) = 10%
2021	$1,400,000	The firm has no debt
2022 2023	$1,800,000 $2,500,000	Number of common shares outstanding = 1,000,000

 

a. Based on your valuation, what is the common stock per share? Is the stock worth buying?

 

b. What is the common stock per share if the terminal growth rate (growth rate beyond 2023) were 5% instead of 3%?

 

Please cut and paste your Excel spreadsheet here.

5.         The Mayflower Corporation has two different bonds currently outstanding. Bond A has a face value of $50,000 and matures in 5 years. The bond makes no payments for the first 2 years, then pays $2,000 every 6 months over the next 3 years until maturity. Bond B also has a face value of $50,000 and matures in 5 years; it makes $750 of coupon payment every 6 months over the life of the bond. If the annual required rate of return for both of these bonds is 10%, what is the value of Bond A? Bond B?

6.         The Zuma Company stock currently has earnings per share of $6.00 and 1 million shares outstanding. The company expects earnings to grow at 2% indefinitely. It pays out all earnings as dividends. The company has a new investment opportunity that requires $3million of initial investment. The project is expected to generate a fixed $600,000 of after-tax cash flows per year for the indefinite future. The company's required rate of return is 12%.

 

1. What is the stock value per share assuming the firm does not undertake the new investment opportunity?
2. What is the net present value (NPV) of the new investment opportunity?
3. What will be the value per share if the firm undertakes the new investment opportunity?