This is a matter of CORPORATE FINANCE. Involves answering multiple choice questions, questions to be commented on and the resolution of 3 Cases. All questions should be answered by giving a FULL justification (so I can understand the reasoning behind the answer), with particular emphasis of course on the questions to be commented on and on the resolution of the Cases.

I - Multiple choice questions For each one of the following 10 questions, indicate the answer which, in your opinion, seems to be the most correct one. 1. An investment project, from a financial point of view, is an application of financial funds that is conducted in order to obtain financial benefits: a. Immediately b. In the short term c. In a considerable amount of time d. In the long term 2. The investment-related amortisations are comprised within the calculation chart of \"cash flows\" because: a. They represent a company's cash outflow b. They represent an investment expenditure c. They constitute an operational cost d. They represent a tax benefit 3. The concept of updated value, which allows a comparison between relative values over different periods of time, has as its fundamental prerequisite that the available financial resources a. Are always applicable, hence generating revenue (positive, negative or null) b. Are applied, as they allow to generate a positive revenue c. Will only be applied if their holders decide to do so d. Can be applied in different alternative applications 4. The update of cash flows, an element of the NPV calculation, is a proper example of the application of the concept of a. Risk assessment b. Sensitivity analysis c. Long-term planning d. Opportunity cost 5. The investor's opportunity cost represents: a. The cost of investing in the project b. The total operating cost throughout the project's duration c. The yield rate of the best investment alternative d. The cost rate of financing the investment 6. Acquainted with the fact that the IRR of the projects A, B, C and D are: A: 30%, B: 25%, C: 26% e D: 15%, what projects should be accepted if the cost-of-capital rate is 26%? a. A, B b. A, D c. A, C d. B, C 7. Take into consideration the projects A and C, with the following cash flows: Yea r 0 1 2 3 A B C -100 80 80 80 -500 300 200 100 15 0 0 20 0 50 0 The simple periods to recover the investment (without taking into account the annual updates of cash flows) of projects are, respectively: a. One year and three months, two years, one year and nine months b. One year and six months, two years, one year and seven months c. One year and eight months, two years, one year and five months d. One year and ten months, two years, one year and three months 8. The goal of the sensitivity analysis is to: a. Confirm the adequacy of the prerequisites used for the project study b. Overcome discrepancies between different evaluation criteria c. Anticipate possible changes in the project's prerequisites 9. Take into consideration an investment of 5 000 euros which will be financed with equity capitals of 4 000 and a borrowed capital of 1 000 euros. Supposing that the loan interest rate is 10% and the cost rate of equity capital is 15%, and admitting that there are no taxes to be applied, the weighted average cost of the capital of investment will be: a. 11%. b. 12%. c. 13%. d. 14% 10. The weighted average cost of capital must be used as a refresh rate during a. The assessment of the investment decision b. The assessment of the financing decision c. The assessment of the value that is generated by combining the investment and the financing II - Questions to be commented on Comment on the following questions: A. \"The NPV of an investment project grants the opportunity to know the value generated for the investor, which is the outcome of the application of his savings on the project realisation, regardless of other possible applications of those same savings.\" B. \"The sensitivity analysis that is applied during the assessment of an investment project constitutes a crucial instrument to make a decision on whether or not to invest in such project.\" C. \"The assessment of the decision of financing a project should precede the assessment of the investment decision given the fact that, without having proper financial means available, it will not possible to carry out that same project.\" III - Cases 1 - Take into consideration the following offer, comprising two alternative wage agreements: 8000 per year for the next 3 years (years 1, 2 and 3) or 6000 per year (years 1, 2 and 3) and an immediate additional payment of 5000 (year 0). Which one is the best wage agreement? Admit an annual refresh rate of 10%. 2 - Based on the outcomes of a market research, a company expects to sell 6 000 units per year of a brand new scanner for the next 3 years (years 1, 2 and 3) at a unit price of 8. The total production costs per year (costs of sales and other operational costs) are 26 000. The company's average collection period in relation to its customers is 2 months. The company's purchases made from its suppliers are paid immediately. The initial investment costs (in year 0), regarding the construction of buildings, will comprise a total of 18 000 and will be amortised with constant shares throughout the project's lifespan (3 years). At the end of the project, the facilities and the equipment will be both be sold for 4000. The company will be profitable and will pay tax on profits at a rate of 40%. The annual refresh rate of cash flows is 10%. a) What is the value of the project's annual operating cash flow ? b) What are the project's annual cash flows ? c) What is the project's net present value ? d) If the investment costs end up being a bit higher than what was initially expected (20 000), what will be the project's new net present value ? 3- Take into consideration the proposal of the following terms for a bank loan of 10 000 Euros to carry out an investment project: - Annual interest rate: 10% - Loan repayment: 2000 (in year 1); 4000 (in year 2); 4000 (in year 3) Stamp duty on credit opening (ISAC): 0,5% of the loan value (to be paid in year 0) Stamp duty: 4% (on interest) (paid annually) Tax rate on profits: 40% (paid annually) a) What are the loan's financial effects ? b) Calculate the FNPV using a refresh rate of 10%. c) Calculate the loan's APR (by attempts or using a rough calculation). 1 C - In a considerable time amount of time because the duration of investments to have cash flows differs depending on terms and conditions for the investment for instance treasury bills and treasury bonds. 2 D- They represent tax benefits since the company is allowed to take deduction for certain amortized expenses 3 B- This is because for a project to be viable it has to have a positive NPV. 4 A -This is because the NPV takes into account the time value of money thereby highlighting any risk expected through fluctuation of discount rate. 5 C-This is because the investors opportunity cost represent the yield foregone by investor by choosing one option instead of the other which could be the one with highest return. 6 C -A, C- This is because the higher the IRR the higher the net cash flow of the project to the investor. 7 A- PROJECT PAYBACK PERIOD A 1+20/80=1.25 =1yr 3 months B 1+200/200=2yrs 8 C -Sensitivity analysis seeks to understand the application of a range of possible variables on a given outcome. 9 D -14% WACC =WeKe( What this stand for. I don't understand the acronym) + WdKd( What this stand for. I don't understand the acronym) We( What this stand for. I don't understand the acronym)=4000/5000 =0.8 Wd( What this stand for. I don't understand the acronym)= 1000/5000 =0.2 WACC=0.8*15% + 0.2*10% =12%+2% =14% 10 A -It is used to assess investment. WACC is the discount rate to be applied to future cash flows to check the viability of the projective calculation of NPV. II A False. The NPV is the difference of the expected cash inflows in future and the cash outlay today. The cash inflows have to be discounted by a specified rate of return. The value of cash flows to be generated in future and not already generated. B True. Sensitivity analysis is a technique used to evaluate how different values of an independent variable impact on a particular investment project being considered for instance different rates of return on a project's cash flows. C False. The assessment of the investment should precede the assessment of the decision of financing since with a viable project, financial means will always be available III CASES 1 Explain all the steps and how you got to this numbers Year 0 1 2 3 Alt1( What this stand for. I don't understand the acronym) amount 0 8000 8000 8000 Alt2( What this stand for. I don't understand the acronym) amount 5000 6000 6000 6000 Discount factor % 1 0.9091 0.8264 0.7513 Total Alt 1 7,272.80 6,611.20 6,010.40 19,894.40 Alt2 5,000 5,454.60 4,958.40 4,507.80 19,920.80 Best wage agreement is 6,000 per year and an immediate payment of 5,000 2 a-Annual operating cash flow Explain all the steps and how you got to this numbers Amount Revenue (6,000*2) 48,000 Less: production cost 26,000 Profit before tax & depreciation 22,000 Less: depreciation 4,666.70 Profit before tax (PBT) 17,333.30 Tax @40% 6,933.30 Profit after tax (PAT) 10,400.70 Add back depreciation 4,666.70 Operating cash flows 15,066.70 Please organize (all) this part better. And explain all the steps and how you got to this numbers Workings-depreciation (18000-4000)/3=4,666.70 B, Annual cash flows Initial investment outlay = -18,000 Operating cash flows =15,066.70 C, project NPV NPV= 15,066.70(1-(1+0.1)^-3)/0.1 - 18,000 =19,469.38 D, New NPV NPV=15066.70*2.4869 -20000 =17,469.38 3a , interest rate expensed in income statement =10%*10,000 =1,000 Increment of expenses by 1,000 Stamp duty reduces the amount of net income by 4%*1000 + 0.5%*10000=90 B, FNPV( What this stand for. I don't understand the acronym) at 10% Year amount discount rate PV 1 2,000+1000+40=3,040 0.9091 2,763.66 2 4000+1000+40=5,040 0.8264 4,165.06 3 4000+1000+40=5,040 0.7513 3,786.55 Total PV 10,765.30 FNPV= 10,000-10,765.30=-765.30 C, APR( What this stand for. I don't understand the acronym)= ((Total finance charge *365)/amount of loan)/0.1*100 ((765.30*365)/10000)/0.1095*100 =2.551% Workings 365*3=1095 3. a. b. c. d. DOUBTS: The concept of updated value, which allows a comparison between relative values over different periods of time, has as its fundamental prerequisite that the available financial resources Are always applicable, hence generating revenue (positive, negative or null) Are applied, as they allow to generate a positive revenue Will only be applied if their holders decide to do so Can be applied in different alternative applications HERE IS NOT THE \"A\" ANSWER? 10. The weighted average cost of capital must be used as a refresh rate during a. The assessment of the investment decision b. The assessment of the financing decision c. The assessment of the value that is generated by combining the investment and the financing HERE IS NOT THE \"C\" ANSWER? PLEASE DEVELOP MORE THIS ANSWERS AND CITE SOME BIBLIOGRAPHY: II - Questions to be commented on Comment on the following questions: A. \"The NPV of an investment project grants the opportunity to know the value generated for the investor, which is the outcome of the application of his savings on the project realisation, regardless of other possible applications of those same savings.\" False. The NPV is the difference of the expected cash inflows in future and the cash outlay today. The cash inflows have to be discounted by a specified rate of return. The value of cash flows to be generated in future and not already generated. B. \"The sensitivity analysis that is applied during the assessment of an investment project constitutes a crucial instrument to make a decision on whether or not to invest in such project.\" B True. Sensitivity analysis is a technique used to evaluate how different values of an independent variable impact on a particular investment project being considered for instance different rates of return on a project's cash flows. C. \"The assessment of the decision of financing a project should precede the assessment of the investment decision given the fact that, without having proper financial means available, it will not possible to carry out that same project.\" C False. The assessment of the investment should precede the assessment of the decision of financing since with a viable project, financial means will always be available PLEASE ANSWER HERE. PLEASE EXPLAINE ALL THE STEPS (STEP BY STEP) AND ACRONYMS USED: III - Cases 1 - Take into consideration the following offer, comprising two alternative wage agreements: 8000 per year for the next 3 years (years 1, 2 and 3) or 6000 per year (years 1, 2 and 3) and an immediate additional payment of 5000 (year 0). Which one is the best wage agreement? Admit an annual refresh rate of 10%. ANSWER: 2 - Based on the outcomes of a market research, a company expects to sell 6 000 units per year of a brand new scanner for the next 3 years (years 1, 2 and 3) at a unit price of 8. The total production costs per year (costs of sales and other operational costs) are 26 000. The company's average collection period in relation to its customers is 2 months. The company's purchases made from its suppliers are paid immediately. The initial investment costs (in year 0), regarding the construction of buildings, will comprise a total of 18 000 and will be amortised with constant shares throughout the project's lifespan (3 years). At the end of the project, the facilities and the equipment will be both be sold for 4000. The company will be profitable and will pay tax on profits at a rate of 40%. The annual refresh rate of cash flows is 10%. ANSWER: a) What is the value of the project's annual operating cash flow ? ANSWER: b) What are the project's annual cash flows ? ANSWER: c) What is the project's net present value ? ANSWER: d) If the investment costs end up being a bit higher than what was initially expected (20 000), what will be the project's new net present value ? ANSWER: 3- Take into consideration the proposal of the following terms for a bank loan of 10 000 Euros to carry out an investment project: - Annual interest rate: 10% - Loan repayment: 2000 (in year 1); 4000 (in year 2); 4000 (in year 3) Stamp duty on credit opening (ISAC): 0,5% of the loan value (to be paid in year 0) Stamp duty: 4% (on interest) (paid annually) Tax rate on profits: 40% (paid annually) a) What are the loan's financial effects ? ANSWER: b) Calculate the FNPV using a refresh rate of 10 % ANSWER: c) Calculate the loan's APR (by attempts or using a rough calculation). ANSWER: 3. a. b. c. d. DOUBTS: The concept of updated value, which allows a comparison between relative values over different periods of time, has as its fundamental prerequisite that the available financial resources Are always applicable, hence generating revenue (positive, negative or null) Are applied, as they allow to generate a positive revenue Will only be applied if their holders decide to do so Can be applied in different alternative applications HERE IS NOT THE \"A\" ANSWER? 10. The weighted average cost of capital must be used as a refresh rate during a. The assessment of the investment decision b. The assessment of the financing decision c. The assessment of the value that is generated by combining the investment and the financing HERE IS NOT THE \"C\" ANSWER? PLEASE DEVELOP MORE THIS ANSWERS AND CITE SOME BIBLIOGRAPHY: II - Questions to be commented on Comment on the following questions: A. \"The NPV of an investment project grants the opportunity to know the value generated for the investor, which is the outcome of the application of his savings on the project realisation, regardless of other possible applications of those same savings.\" False. The NPV is the difference of the expected cash inflows in future and the cash outlay today. The cash inflows have to be discounted by a specified rate of return. The value of cash flows to be generated in future and not already generated. B. \"The sensitivity analysis that is applied during the assessment of an investment project constitutes a crucial instrument to make a decision on whether or not to invest in such project.\" B True. Sensitivity analysis is a technique used to evaluate how different values of an independent variable impact on a particular investment project being considered for instance different rates of return on a project's cash flows. C. \"The assessment of the decision of financing a project should precede the assessment of the investment decision given the fact that, without having proper financial means available, it will not possible to carry out that same project.\" C False. The assessment of the investment should precede the assessment of the decision of financing since with a viable project, financial means will always be available PLEASE ANSWER HERE. PLEASE EXPLAINE ALL THE STEPS (STEP BY STEP) AND ACRONYMS USED: III - Cases 1 - Take into consideration the following offer, comprising two alternative wage agreements: 8000 per year for the next 3 years (years 1, 2 and 3) or 6000 per year (years 1, 2 and 3) and an immediate additional payment of 5000 (year 0). Which one is the best wage agreement? Admit an annual refresh rate of 10%. ANSWER: 2 - Based on the outcomes of a market research, a company expects to sell 6 000 units per year of a brand new scanner for the next 3 years (years 1, 2 and 3) at a unit price of 8. The total production costs per year (costs of sales and other operational costs) are 26 000. The company's average collection period in relation to its customers is 2 months. The company's purchases made from its suppliers are paid immediately. The initial investment costs (in year 0), regarding the construction of buildings, will comprise a total of 18 000 and will be amortised with constant shares throughout the project's lifespan (3 years). At the end of the project, the facilities and the equipment will be both be sold for 4000. The company will be profitable and will pay tax on profits at a rate of 40%. The annual refresh rate of cash flows is 10%. ANSWER: a) What is the value of the project's annual operating cash flow ? ANSWER: b) What are the project's annual cash flows ? ANSWER: c) What is the project's net present value ? ANSWER: d) If the investment costs end up being a bit higher than what was initially expected (20 000), what will be the project's new net present value ? ANSWER: 3- Take into consideration the proposal of the following terms for a bank loan of 10 000 Euros to carry out an investment project: - Annual interest rate: 10% - Loan repayment: 2000 (in year 1); 4000 (in year 2); 4000 (in year 3) Stamp duty on credit opening (ISAC): 0,5% of the loan value (to be paid in year 0) Stamp duty: 4% (on interest) (paid annually) Tax rate on profits: 40% (paid annually) a) What are the loan's financial effects ? ANSWER: b) Calculate the FNPV using a refresh rate of 10 % ANSWER: c) Calculate the loan's APR (by attempts or using a rough calculation). ANSWER: 3. a. b. c. d. DOUBTS: The concept of updated value, which allows a comparison between relative values over different periods of time, has as its fundamental prerequisite that the available financial resources Are always applicable, hence generating revenue (positive, negative or null) Are applied, as they allow to generate a positive revenue Will only be applied if their holders decide to do so Can be applied in different alternative applications HERE IS NOT THE \"A\" ANSWER? 10. The weighted average cost of capital must be used as a refresh rate during a. The assessment of the investment decision b. The assessment of the financing decision c. The assessment of the value that is generated by combining the investment and the financing HERE IS NOT THE \"C\" ANSWER? PLEASE DEVELOP MORE THIS ANSWERS AND CITE SOME BIBLIOGRAPHY: II - Questions to be commented on Comment on the following questions: A. \"The NPV of an investment project grants the opportunity to know the value generated for the investor, which is the outcome of the application of his savings on the project realisation, regardless of other possible applications of those same savings.\" False. The NPV is the difference of the expected cash inflows in future and the cash outlay today. The cash inflows have to be discounted by a specified rate of return. The value of cash flows to be generated in future and not already generated. B. \"The sensitivity analysis that is applied during the assessment of an investment project constitutes a crucial instrument to make a decision on whether or not to invest in such project.\" B True. Sensitivity analysis is a technique used to evaluate how different values of an independent variable impact on a particular investment project being considered for instance different rates of return on a project's cash flows. C. \"The assessment of the decision of financing a project should precede the assessment of the investment decision given the fact that, without having proper financial means available, it will not possible to carry out that same project.\" C False. The assessment of the investment should precede the assessment of the decision of financing since with a viable project, financial means will always be available PLEASE ANSWER HERE. PLEASE EXPLAINE ALL THE STEPS (STEP BY STEP) AND ACRONYMS USED: III - Cases 1 - Take into consideration the following offer, comprising two alternative wage agreements: 8000 per year for the next 3 years (years 1, 2 and 3) or 6000 per year (years 1, 2 and 3) and an immediate additional payment of 5000 (year 0). Which one is the best wage agreement? Admit an annual refresh rate of 10%. ANSWER: 2 - Based on the outcomes of a market research, a company expects to sell 6 000 units per year of a brand new scanner for the next 3 years (years 1, 2 and 3) at a unit price of 8. The total production costs per year (costs of sales and other operational costs) are 26 000. The company's average collection period in relation to its customers is 2 months. The company's purchases made from its suppliers are paid immediately. The initial investment costs (in year 0), regarding the construction of buildings, will comprise a total of 18 000 and will be amortised with constant shares throughout the project's lifespan (3 years). At the end of the project, the facilities and the equipment will be both be sold for 4000. The company will be profitable and will pay tax on profits at a rate of 40%. The annual refresh rate of cash flows is 10%. ANSWER: a) What is the value of the project's annual operating cash flow ? ANSWER: b) What are the project's annual cash flows ? ANSWER: c) What is the project's net present value ? ANSWER: d) If the investment costs end up being a bit higher than what was initially expected (20 000), what will be the project's new net present value ? ANSWER: 3- Take into consideration the proposal of the following terms for a bank loan of 10 000 Euros to carry out an investment project: - Annual interest rate: 10% - Loan repayment: 2000 (in year 1); 4000 (in year 2); 4000 (in year 3) Stamp duty on credit opening (ISAC): 0,5% of the loan value (to be paid in year 0) Stamp duty: 4% (on interest) (paid annually) Tax rate on profits: 40% (paid annually) a) What are the loan's financial effects ? ANSWER: b) Calculate the FNPV using a refresh rate of 10 % ANSWER: c) Calculate the loan's APR (by attempts or using a rough calculation)