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Agri Bank (South Africa) took up a Eurocurrency loan of US$1 000 000 for 180 days at 2.50% per
annum from Naomigroup, Washington, United States of America. The spot exchange rate ZAR/US$
= 17.27, the 180-day forward exchange rate ZAR/US$ = 17.33, and the Rand 180-day interest rate
is 6% per annum.
Calculate the potential profit that Agri Bank stands to make if an arbitrage opportunity is used to
maximise profits. (Assume a 360-day count and round off your answers to the nearest rand.
Dalda Foods is experiencing rapid growth. Dividends are expected to grow at 30 percent per year during the next three years, 18 percent over the following year, and then 8 percent per year indefinitely. The required return on this stock is 11 percent, and the stock currently sells for PKR65 per share. What is the projected dividend for the coming year?
A new device ranges from $42,350-$56,210. Your team wants the $56,210.00 version. Your facility currently bills $350 to Medicaid for 3D ultrasounds that are medically necessary and $150 for 2D ultrasounds. Private insurance is billed $385 (3D) and $185 (2D).
Analyze how many patients your facility would need to see to pay off the device in 6 months (25% of your practice is Medicaid patients) and your practice includes 5 physicians and 2 nurse-midwives. Each sees 50 patients per week.
Is it true that In a bigger, more global economy, one can expect the wages of the most popular entertainers, financial experts and sports stars to increase due to the ‘winner take all’ economics theory ?
PARCO is considering a new project that complements its existing business. The machine required for the project costs $3.9 million. The marketing department predicts that sales related to the project will be $2.35 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated down to zero over its four-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 25 percent of sales. PARCO also needs to add net working capital of $150,000 immediately. The additional net working capital will be recovered in full at the end of the project’s life. The corporate tax rate is 30 percent. The required rate of return for PARCO is 13 percent. Should PARCO proceed with the project?
Dalda Foods is experiencing rapid growth. Dividends are expected to grow at 30 percent per year during the next three years, 18 percent over the following year, and then 8 percent per year indefinitely. The required return on this stock is 11 percent, and the stock currently sells for PKR65 per share. What is the projected dividend for the coming year?
1. Pakistan State Oil (PSO) issues a bond with a par value of PKR1,000, 15 years to maturity, and a coupon rate of 5 percent paid annually. If the yield to maturity is 4 percent, what is the current price of the bond?
You have just been hired by Intel in its finance division. Your first assignment is to determine the net cash flows and NPV of a proposed new generation of mobile chips.
Capital expenditures to produce the new chips will initially require an investment of
$1.2 billion. The R&D that will be required to finish the chips is $500 million this year.
Any ongoing R&D for upgrades will be covered in the margin calculation in 2a below. The product family is expected to have a life of five years. First-year revenues for the new chip are expected to be $2,000,000,000 ($2,000 million). The chip family’s revenues are expected to grow by 20% for the second year, and then decrease by 10% for the third, decrease by 20% for the 4th and finally decrease by 50% for the 5th (final) year of sales. Your job is to determine the rest of the cash flows associated with this project. Your boss has indicated that the operating costs and net working capital requirements are similar to the rest of the company’s products. Since your boss hasn’t been much help, here are some tips to guide your analysis:
1. Obtain Intel’s financial statements. Download the annual income statements and balance sheets for the last four fiscal years from Wall Street Journal Website
(https://www.wsj.com/market-data/quotes/INTC/financials/annual/income-statement). Go to “Financials.” Click “Annual,” to ensure you’re getting
annual, instead of quarterly, data. Next, copy and paste the income statements
and balance sheets into Excel.
2. You are now ready to determine the free cash flow. Compute the free cash flow for
each year using Eq. 9.6 from this chapter showing all steps :
Free Cash Flow = (Revenues - Costs - Depreciation) * (1 - Tax Rate)
+ Depreciation - CapEx - Change in NWC ---------------- Unlevered Net Income
Set up the timeline and computation of the free cash flow in separate, contiguous
columns for each year of the project life. Be sure to make outflows negative and
inflows positive.
a. Assume that the project’s profitability will be similar to Intel’s existing projects
in 2015 and estimate costs each year by using the 2015 ratio of non-depreciation
costs to revenue:
[(Cost of Revenue + SG&A + R&D)/ Total Revenue]
You should assume that this ratio will hold for this project as well. You do not need
to break out the individual components of operating costs in your forecast. Simply
forecast the total of Cost of Revenue + SG&A + R&D for each year.
b. Determine the annual depreciation by assuming Intel depreciates these assets by
the straight-line method over a 5-year life.
c. Determine Intel’s tax rate as [1 - (Income After Tax/Income Before Tax)] in 2015.
Note that on Intel’s income statement on Google Finance, there is a difference
between operating income and income before tax. That difference is due to small
adjustments. Ignore this issue and simply focus on the Income Before Tax line.
d. Calculate the net working capital required each year by assuming that the level
of NWC will be a constant percentage of the project’s sales. Use Intel’s 2015
NWC/Sales to estimate the required percentage. (Use only accounts receivable,
accounts payable, and inventory to measure working capital. Other components of
current assets and liabilities are harder to interpret and are not necessarily reflec-
tive of the project’s required NWC—e.g., Intel’s cash holdings.)
e. To determine the free cash flow, calculate the additional capital investment and
the change in net working capital each year.
3. Determine the IRR of the project and the NPV of the project at a cost of capi-
tal of 12% using the Excel functions. For the calculation of NPV, include
cash flows 1 through 5 in the NPV function and then subtract the initial cost
(i.e., = NPV(rate, CF1 : CF5) + CF0). For IRR, include cash flows 0 through 5 in
the cash flow range
Syafik borrowed RM150,000 from ABC Bank for 5 years at an interest rate of 12% compounded monthly. How much is his monthly loan payment?
The house you wish to buy costs Rs.30,000,000. The
dealer has a special leasing arrangement where you pay Rs.1,700,000 today and Rs.450,000 per
month for the next six years. If you purchase the house, you will pay it off in monthly payments
over the next six years at required rate of return of 6 percent per annum. You believe that you
will be able to sell the house for Rs.35,000,000 in six years.
Required to calculate and answer the following :
1. What option will be beneficial for you either buying house in single payment or buying
on lease.
2. Assume you purchase the house in onetime payment and sold it for 35,000,000 after six
years on same interest rate compounding monthly will this be a good and profitable deal
for you.
