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Financial Math
4.Three alternative projects have initial costs and revenues (each in thousands of Malaysian ringgit-RM) for the next five years as shown below:
Project Initial Cost Net revenue in each year
1 2 3 4 5
A 1000 500 400 300 200 100
B 1000 200 200 300 400 400
C 500 500 200 200 100 50
a.Using conventional accounting, use average rate of return as a percentage of initial investment to determine which project to be undertaken.
b.If the company has enough resources to start only one project, use discounting rate of 10% to suggest the best.
c.Aside quantitative factors for choosing a project, what qualitative factors would you consider in choosing the particular project?
Project Initial Cost Net revenue in each year
1 2 3 4 5
A 1000 500 400 300 200 100
B 1000 200 200 300 400 400
C 500 500 200 200 100 50
a.Using conventional accounting, use average rate of return as a percentage of initial investment to determine which project to be undertaken.
b.If the company has enough resources to start only one project, use discounting rate of 10% to suggest the best.
c.Aside quantitative factors for choosing a project, what qualitative factors would you consider in choosing the particular project?
Financial Math
To be able to go on a trip to South America, Keiko decides to save for 4 years. She opens a savings account with $200. The account pays simple interest at an annual rate of 2%. She doesn't make any more deposits.
Answer the following questions. If necessary, refer to the list of financial formulas.
Answer the following questions. If necessary, refer to the list of financial formulas.
Financial Math
Sheen Ltd manufactures garden tools and has decided to expand operations. The new
operations are expected to increase EBIT from the current level of $500 000 to $1 million p.a.
Sheen has a capital structure that utilises bonds, ordinary equity and preference shares. The
$500 000 of issued bonds pay 6% p.a.. Preference shares pay an annual fixed dividend of $70
000. The company has 1 000 000 ordinary shares that are trading at $5.1 per share. The
Australian corporate tax rate is 30%. Most of the shareholders of Sheen live outside Australia
and cannot fully utilise dividend imputation credits.
Sheen needs to raise $700 000 to fund the expansion. Assuming the company can issue new
shares at the current market price, what is the impact on EPS new shares are issued to fund the
centre? If new debt can be raised at a 9% interest rate, what is the impact on EPS of using debt
rather than a new equity issue?
operations are expected to increase EBIT from the current level of $500 000 to $1 million p.a.
Sheen has a capital structure that utilises bonds, ordinary equity and preference shares. The
$500 000 of issued bonds pay 6% p.a.. Preference shares pay an annual fixed dividend of $70
000. The company has 1 000 000 ordinary shares that are trading at $5.1 per share. The
Australian corporate tax rate is 30%. Most of the shareholders of Sheen live outside Australia
and cannot fully utilise dividend imputation credits.
Sheen needs to raise $700 000 to fund the expansion. Assuming the company can issue new
shares at the current market price, what is the impact on EPS new shares are issued to fund the
centre? If new debt can be raised at a 9% interest rate, what is the impact on EPS of using debt
rather than a new equity issue?
Financial Math
Matt wants to buy a new riding lawn mower. The price is $2595. He finances the mower over 36 months after making a down payment of $395. The true annual interest rate is 12%. What is Matt’s monthly payments? (Principal plus interest)
Use the formula I = (2yc)/(m(n+1))
Use the formula I = (2yc)/(m(n+1))
Financial Math
P and Q are partners in a venture,P contributed $20,000 for nine months and Q contributed $50,000 for one year:find each person's share of profit of $6,300?
Financial Math
Keiko payed 0.28 or her yearly earnings in taxes what fraction of her yearly earnings did she not Pay in taxes
Financial Math
[10 points] The financial wizard Joe Getrichfast offers you the following deal for a fee of $100: buy 100 shares of a stock that will rise at least 20% by
three weeks from now with 66% probability.
Let S(0) be the initial price of a stock. Let S(n) be the price of the same stock
at the end of the nth week, n ≥ 1. According to Joe Getrichfast the evolution of
these prices follows the rule that S(n+1)
S(n)
are independent log-normal variables with
lognormal parameters µ = 0.135252, σ = 0.3 for n ≥ 0.
(a) Verify the wizard’s claim that the stock price will rise at least 20% with 66%
probability.
(b) Calculate the net gain of the investor in the event that the stock price rises
20%. The transaction cost of trading 100 shares is $8 and according to financial
wizard the initial price of the stock is S(0) = $52.
(c) Being a cautious investor you want to evaluate the downside. What is the
probability that your investment will be worth less than half of its original value at
the end of the third week?
three weeks from now with 66% probability.
Let S(0) be the initial price of a stock. Let S(n) be the price of the same stock
at the end of the nth week, n ≥ 1. According to Joe Getrichfast the evolution of
these prices follows the rule that S(n+1)
S(n)
are independent log-normal variables with
lognormal parameters µ = 0.135252, σ = 0.3 for n ≥ 0.
(a) Verify the wizard’s claim that the stock price will rise at least 20% with 66%
probability.
(b) Calculate the net gain of the investor in the event that the stock price rises
20%. The transaction cost of trading 100 shares is $8 and according to financial
wizard the initial price of the stock is S(0) = $52.
(c) Being a cautious investor you want to evaluate the downside. What is the
probability that your investment will be worth less than half of its original value at
the end of the third week?
Financial Math
(b) The demand for a particular item is 12000 units per year. The ordering cost is Rs. 100 per order and the holding cost is Rs. 0.80 per item per month. If no shortages are allowed and the replacement is instantaneous, determine
(i) The economic order quantity (2 marks)
(ii) The time between orders (2 marks)
(iii) The number of orders per year (1 mark)
(iv) The optimum annual cost if the cost of item is Rs. 2 per item. (2 marks)
(i) The economic order quantity (2 marks)
(ii) The time between orders (2 marks)
(iii) The number of orders per year (1 mark)
(iv) The optimum annual cost if the cost of item is Rs. 2 per item. (2 marks)
Financial Math
A grocery shop sells milk packets (containing 1/ 2 a litre of milk) as well. It makes
bulk purchase of the same from the nearby city. Every time a purchase is made, it
incurs a cost of ` 50 towards transportation. The daily demand of packets is about
250. Holding cost is ` 0.10 for a packet a day to preserve it in a refrigerator.
Determine the optimum quantity of a bulk purchase and the cycle time.
bulk purchase of the same from the nearby city. Every time a purchase is made, it
incurs a cost of ` 50 towards transportation. The daily demand of packets is about
250. Holding cost is ` 0.10 for a packet a day to preserve it in a refrigerator.
Determine the optimum quantity of a bulk purchase and the cycle time.
Financial Math
Explain each parameter in the sequencing model: n/m/F/Fmax
