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Finance
A twenty-year-old decides to save Rs.1,000 per month into a retirement account that will mature when she will turn 65. How much will she accumulate assuming that the she gets a return @12% per annum compounded monthly? How much will a 40-year-old get if he makes a similar investment? How much more does he need to invest to get the same amount?
Finance
Doug, a resident of Australia, receives a $10,000 dividend franked to 100% ($4,285 franking credits).
He has also earned bank interest of $1,500 and has allowable deductions of $510 for the year of
income.
Required:
Calculate Doug’s net tax payable / refundable that would be assessed in relation to the year ended 30
June 2019.
He has also earned bank interest of $1,500 and has allowable deductions of $510 for the year of
income.
Required:
Calculate Doug’s net tax payable / refundable that would be assessed in relation to the year ended 30
June 2019.
Finance
The new project is likely to give a rate of return of 14% before taxes. An investment
company is willing to finance the project through a private placement of 5 crore in the
form of 10% p.a. interest bearing bonds. Apollo’s shares have historically been selling at
P/E of 10. Current earnings are Rs.2.70 and the company is in the 50% tax bracket.
The present Capital structure of the company is:
Long term debt (8%) 1,00,00,000
Common Stock (Rs.2 par value, 1 crore shares outstanding) 2,00,00,000
Retained earnings 17,00,00,000
Total capital 20,00,00,000
before tax marginal cost of the project is 10% (interest on
new loan) and the likely before tax returns from the project are higher than 10% the
company should go ahead. Discuss.
P/E declines to 9, what level of
annual earnings (before interest and taxes) must the new project generate in order to
meet the company’s objective of no change in the value of the stock price.
company is willing to finance the project through a private placement of 5 crore in the
form of 10% p.a. interest bearing bonds. Apollo’s shares have historically been selling at
P/E of 10. Current earnings are Rs.2.70 and the company is in the 50% tax bracket.
The present Capital structure of the company is:
Long term debt (8%) 1,00,00,000
Common Stock (Rs.2 par value, 1 crore shares outstanding) 2,00,00,000
Retained earnings 17,00,00,000
Total capital 20,00,00,000
before tax marginal cost of the project is 10% (interest on
new loan) and the likely before tax returns from the project are higher than 10% the
company should go ahead. Discuss.
P/E declines to 9, what level of
annual earnings (before interest and taxes) must the new project generate in order to
meet the company’s objective of no change in the value of the stock price.
Finance
Briefly explain the process of finding the optimal weight of various asset classes in a portfolio when you use the modern portfolio theory.
Finance
You recently accepted an assignment with Oxford Limited as a financial consultant. One of your first
assignments is the analysis of two proposed capital investment projects. Details of initial investments,
after-tax cash flows and average annual profits are represented below:
Year After-tax Cash flows
Initial investments
Cash flows
Average annual profits
1
2
3
4
Project A Project B
(R50 000)
R26 200
R12 200
R12 200
R5 000
R1 400
(R50 000)
R14 200
R14 200
R14 200
R14 200
R1 700
2.1. Which project has a shorter payback period? Motivate your answer by doing the relevant
calculations (answers expressed in years, months, and days)
assignments is the analysis of two proposed capital investment projects. Details of initial investments,
after-tax cash flows and average annual profits are represented below:
Year After-tax Cash flows
Initial investments
Cash flows
Average annual profits
1
2
3
4
Project A Project B
(R50 000)
R26 200
R12 200
R12 200
R5 000
R1 400
(R50 000)
R14 200
R14 200
R14 200
R14 200
R1 700
2.1. Which project has a shorter payback period? Motivate your answer by doing the relevant
calculations (answers expressed in years, months, and days)
Finance
Mrs. Ram has been saving Rs.15,000 per month for the last 5 years and continue to save
the same amount for the next 15 years for her retirement at age 60. The return on
investment is 12% p.a. compounded monthly. If she withdraws Rs.45,000 per month after
retirement (after 15 years) for the next 20 years (i.e. from age 60 to 80), how much money
will she have at age 80? Assume the same rate of interest on post retirement investment
and withdrawal is at the beginning of the month.
the same amount for the next 15 years for her retirement at age 60. The return on
investment is 12% p.a. compounded monthly. If she withdraws Rs.45,000 per month after
retirement (after 15 years) for the next 20 years (i.e. from age 60 to 80), how much money
will she have at age 80? Assume the same rate of interest on post retirement investment
and withdrawal is at the beginning of the month.
Finance
Pharmos Incorporated is a Pharmaceutical Company which is considering investing in a new
production line of portable electrocardiogram (ECG) machines for its clients who suffer from
cardio vascular diseases. The company has to invest in equipment which cost $2,500,000 and falls within a MARCS depreciation of 5-years, and is expected to have a scrape value of $200,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase account payable by $50,000 at the beginning of the project. Pharmos Incorporated expect the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000.
production line of portable electrocardiogram (ECG) machines for its clients who suffer from
cardio vascular diseases. The company has to invest in equipment which cost $2,500,000 and falls within a MARCS depreciation of 5-years, and is expected to have a scrape value of $200,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase account payable by $50,000 at the beginning of the project. Pharmos Incorporated expect the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000.
Finance
Mr. Rahul has been saving Rs.9,500 at the beginning of every quarter for 25 years at an
average return of 14% p.a. compounded quarterly. He has to set apart Rs.15,00,000 for
his daughter’s marriage and Rs.10,00,000 for his son’s marriage from accumulated sum
after 25 years. He is saving separately for their education and he wishes to withdraw a
certain amount for the next 25 years on the remaining sum. The money accumulated will
be invested at a rate of 8% p.a. How much can he withdraw at the beginning of every
year?
average return of 14% p.a. compounded quarterly. He has to set apart Rs.15,00,000 for
his daughter’s marriage and Rs.10,00,000 for his son’s marriage from accumulated sum
after 25 years. He is saving separately for their education and he wishes to withdraw a
certain amount for the next 25 years on the remaining sum. The money accumulated will
be invested at a rate of 8% p.a. How much can he withdraw at the beginning of every
year?
Finance
A stock follows a Geometric Brownian Motion. This means its log returns are normal and the stock price will be lognormal. The annualized expected value of the log returns is 20%, and the annualized the standard deviation is 30%. The risk free rate is 5% continuously compounded and the dividend yield is 2% also continuously compounded. The initial stock price is $30.
An investor buys a weird product. It pays out the stock price in odd years and the stock price/2 in even years. This continues for 6 years. There is no cash flow in year zero, so this product produces 6 cash flows in years 1,2,3,4,5,6. On top of this in year 6 the contract pays out max(2*S(6)-60,0)
What is the fair price of this weird contract. Please explain each step in your computations. Construct a confidence interval for the price, explaining each step. Attach the output of your excel computations which illustrate exactly what you have done.
An investor buys a weird product. It pays out the stock price in odd years and the stock price/2 in even years. This continues for 6 years. There is no cash flow in year zero, so this product produces 6 cash flows in years 1,2,3,4,5,6. On top of this in year 6 the contract pays out max(2*S(6)-60,0)
What is the fair price of this weird contract. Please explain each step in your computations. Construct a confidence interval for the price, explaining each step. Attach the output of your excel computations which illustrate exactly what you have done.
Finance
ABC Pvt. Ltd. is considering two mutually exclusive capital investments. The project’s expected net cash flows are as follows:
Expected Cash Flows
Year Project A Project B
0 -375 -575
1. -300 190
2 -200 190
3. -100 190
4 600 190
5. 600 190
6. 926 190
7 -200 0
If you were told that each project’s cost of capital was 12%, which project should be selected using the NPV criteria? What is each project’s IRR? What is the regular payback period for these two projects? What is the profitability index for each project if the cost of capital is 12%?
Expected Cash Flows
Year Project A Project B
0 -375 -575
1. -300 190
2 -200 190
3. -100 190
4 600 190
5. 600 190
6. 926 190
7 -200 0
If you were told that each project’s cost of capital was 12%, which project should be selected using the NPV criteria? What is each project’s IRR? What is the regular payback period for these two projects? What is the profitability index for each project if the cost of capital is 12%?
