Financial Math Answers

3. The chairman of the company receives a call from an angry shareholder who own 3,000 shares. The shareholder argues that he will suffer a loss in his personal wealth due to this rights issue, because the new shares are being offered at a price lower than the current mark value. The chairman assures him that his wealth will not be reduced because of the rights issue, as long as the sharesholder takes appropriate action.
Required:
Prepare a statement showing the effects of the right issue on this particular shareholder’s wealth, assuming he exercises the rights and sells half of it.

CP India Ltd has the following capital structure, which it considers optimal: Debt 25%
Preference Shares 15% Equity shares 60% Total 100%
Applicable tax rate for CPIL is 25%. and investors expect earnings and dividends to grow at a constant rate of 9% in the future. Risk free rate of return is 6%, average equity share has expected rate of return of 15%. CPIL’s beta is 1.50. Following terms would apply to new securities being issued as follows:

1. New preference can be issued at a face value of Rs. 100 per share, dividend and cost of
issuance will be Rs. 8 per share and Rs. 4 per share respectively.
2. Debt will bear an interest rate of 10%.
Calculate
a. Component cost of debt, preference shares and equity shares assuming that CPIL does
not issue any additional equity shares.
b. WACC.

It’s time for Ronda to start repaying her student loans, which are amortized over the next 10 years. Her first month’s payment due is $396. How much should she expect to pay next month?

At a discount of 4% for 90-day treasury bill, an investor paid 970.10 pesos. How much will the investor received at maturity??

At a discount of 3% for a one- year treasury bill, an investor paid 970.87 pesos. How much will the investor received at maturity??

A company will need $75,000 in 5 years. To meet this goal the company deposits money in an account today that pays 11% annual interest compounded quarterly. What amount should be invested to total $75,000 in 5 years?

Which certificate does Jenny require?
Jenny is a financial planner and wants to sell fixed-income investments. For this purpose, she requires a(n) _______ certificate.

Suppose that ABC Ltd is considering purchasing one of three new processing machines. Either machine would make it possible for the company to produce its products more efficiently. Estimates regarding each machine are provided below:

Machine A Machine B Machine C
Original cost $79,000 $110,000 $244,000
Estimated life 7 years 8 years 10 years
Salvage value Nil Nil $30,000
Estimated annual cash inflows $30,000 $ 60,000 $58,500
Estimated annual cash outflows $ 7,000 $ 35,000 $18,500



If the projects cannot be repeated, which machine should ABC Ltd choose based on the NPV criteria at an 8% cost of capital? (9 marks)

A family buys a house worth $326,000. They pay $75,000 deposit and take a mortgage for the balance at J12=9% p.a. to be amortized over 30 years with monthly payments.

A. Find the value of the mortgage on their house? (2 mark)
B. Find the value of the monthly payment? (4 marks)
C. Find the loan outstanding after making 20 payments? (4 marks)
D. Find the principal repaid in the 21st payment? (5 marks)