Finance Answers

ABC and DEF are identical firms except that DEF is more levered. Both companies will remain in business for one more year. The companies’ economists agree that the probability of the continuation of the current expansion is 80 % for the next year, and the probability of a recession is 20 percent. If the expansion continues, each firm will generate earnings before interest and taxes (EBIT) of $2.7 million. If a recession occurs, each firm will generate earnings before interest and taxes (EBIT) of $1.1 million. ABC’s debt obligation requires the firm to pay $0.9 million at the end of the year. DEF’s debt obligation requires the firm to pay $1.2 million at the end of the year. Neither firm pays taxes. Assume a discount rate of 15 percent. 

a. What is the value today of ABC’s debt and equity? What about that for DEF’s? 

b.  DEF’s CEO recently worried that its firm value should be lower than ABC’s because the firm has more debt and therefore more bankruptcy risk. Do you agree or disagree with this statement?   

Danielle Debtfree is also a college junior. She has always been very cautious with money and thinks her friends with credit cards are crazy. She pays only with cash and debit cards, and while she knows she can handle credit cards given her frugal ways, she doesn’t want to ask her parents to sign off on a credit card for her, as she doesn’t turn 21 for a few more months.

For each of Danielle’s actions, mark whether you think that factor improves (+) or decreases (--) her credit score.

1) She currently has no credit cards

2) She has no loans outstanding

Questions:

1. What do you think Danielle’s credit score is (from a range of 300-850)?

2. Now, go to the myFICO Credit Score Estimator and use Danielle’s information to complete it. What is Danielle’s estimated credit score?

3. What does Danielle’s score say about her creditworthiness?

4. As her credit counselor, what recommendations would you make to Danielle to improve her credit score?

Individual's Saving Accounts

According to an article by CNBC, a new survey finds the median American household has $2,729 in a savings account in 2019 and 34% of Americans have nothing saved. What does this say about Americans financial management? How does the lack of saving impact other Americans?

Activity One - Financial Management

This module takes a look at financial management. This activity provides an opportunity to take an inventory of your own financial management.

Steps to Take

1. Please take an inventory in detail all the methods or tools you use for managing your cash flows.
2. Include all your accounts that are mediated through banks and finance companies.
3. Please list your cards issued by banks, such as debit or ATM cards, and identify any direct deposits and automatic payments that are made through your savings and checking accounts.
4. Do you think you might be able to further enhance your cash management through the use of banking tools?

Extra Directions: Respond to these promoters as if you were sixteen years old in high school as a sophomore student.

Ndiyepano investments Ltd.is considering a project requiring an initial investment of $1billion and subsequent cash flows of 200 million, 300million, 400 million and 500 million. Shareholders of Ndiyepano investments require a minimum of 5% return on their investment. Evaluate the viability of this project using NPV and IRR

(i) What are the aims of time series analysis? (1marks)

(ii) Describe what a ‘season’ is in the context of a time series and give some examples. (1 marks)

(iii) Describe the stages in obtaining a time series trend using the method of semi-averages. (1 marks)

(iv) Why must forecasts be treated with caution? (2 marks)

What is a component of a country's balance of

payments account?

What are various laws related to banks in Zambia and how they have been applied to save banks from collapsing? 10 marks

You just won the lottery. You can take your Rs.10, 00,000 in a lump- sum today, or you can receive Rs. 100,000 at the end of every year for 12 years. You can invest your money 3%per annum. Ignoring all tax consideration, which would you prefer? But if you receive Rs.50,000at the end of every six-month as semi- annual compounding system, what could be the difference in your decision?

What are the ten key factors of the importance of the banking industry? 10marks