Financial Math Answers

A company wants to undertake an investment and has two projects under consideration. Project 1 will have a useful life of 7 years whereas project 2 would have a useful life of 6 years. Project 1 would also require an initial investment of GHc300,000 plus an additional repair cost of GHc20,000 on year 6. Project 2 would also require an initial investment of GHc240,000 plus an additional repair cost of GHc25,000 in years 4 and 5. Project 1 and 2 have an estimated salvage value of GHc5000 and GHC3000 respectively. Due to different project risk, project 1 and project 2 would be evaluated at an interest rate of 10% and 12% per year respectively. Project profits are estimated to be GHc100,000 and GHc100,000 per year respectively for both projects starting at the end of year 1 till the end of their respective project lifespans.

Using the NPV approach, determine which project the company must invest in.

Joan has savings of $12000 on June 1. Since she may need some of the savings during the next 3 months she is considering two options at her bank. an Investment builder saving account earns a 2.25% rate of interest. The interest is calculated on the daily closing balance and paid on the first day of the following month. A 90- to 179- day cashable term deposit earns a rate of 2.8% paid at maturity. If interest rates do not change and Joan does not withdraw any of the funds how much more will she earn from the term deposit up to September 1? (Keep in mind that savings accounts interest paid on the first day of the month will itself subsequently earn interest during the subsequent month.)

Evan's saving account pays interest of 1.25%. interest is calculated on the daily closing balance and paid at the close of business on the last day of the month. Evan's account balance on July 1 was $8240. He deposited $1235 on July 14 and withdrew $840 on July 22. How much interest will Evan be paid for the month of July?

a)     Write the level of measurement for each of the following variables                                   

(i)                A credit rating assigned to a bond. The ratings (from highest quality to the lowest quality) are AAA, AA, A BBB,BB, B C and D.

(ii)             Your home town

What is the present value of Rs 10,000 due in two years at 8% p.a,C.I according at the interest is paid (a) yearly or (b) half yearly

what is the present value of Rs 10,000 due in 2 years at 8%p.a

A debt of P120,000 is to be amortized by equal payments at the end of every quarter for 2 years. If the interest charged is 12% compounded semi-annually, find the outstanding principal after each payment is made. Construct an amortization schedule.

The following additional information is available for the year:

(a)   Land was purchased by issuing 40,000 12.5% preference shares of Sh20 at par fully paid at a premium of 25%.

(ii)  Half of the redeemable preference shares were redeemed at Sh.110. The premium was paid out of share premium account. For this purpose, 20,000 ordinary shares were issued fully paid for cash at a premium of 10%. The capital redemption reserve was created out of transfer from general reserve.

(iii) A plant which had cost Sh.95,000 was sold for Sh.35,000. Depreciation on the plant at the time of disposal was Sh.78,000.

(iv) 7% Sh1,000,000 debentures were redeemed for Sh.900,000.

Required:

A cash flow statement for the year ended 30 June 1994.

Suppose financial analysts believe that there are four equally likely states of the economy: depression, recession, normal, and boom. The returns on the Supertech Company are expected to follow the economy closely, while the returns on the Slowpoke Company are not. The return predictions are as follows:

  States of the economy

Depression

Recession Normal Boom

Allos Inc. Returns (𝑹𝑨) -20%

10% 30% 50%

Orangus Inc.Returns (𝑹𝑩)

5%

20% -12% 9%

       a. For each company calculate:

i. the expected returns

ii. the Variance

iii. the Standard deviation

b. Assuming you are an investor with GHS100 available. If you invest GHS60 and GHS40 in Allos Inc. and Orangus Inc. respectively, what will be your portfolio returns?

c. Calculate the Standard deviation of the portfolio.

A company wants to undertake an investment and has two projects under consideration. Project 1 will have a useful life of 7 years whereas project 2 would have a useful life of 6 years. Project 1 would also require an initial investment of GHc300,000 plus an additional repair cost of GHc20,000 on year 6. Project 2 would also require an initial investment of GHc240,000 plus an additional repair cost of GHc25,000 in years 4 and 5. Project 1 and 2 have an estimated salvage value of GHc5000 and GHC3000 respectively. Due to different project risk, project 1 and project 2 would be evaluated at an interest rate of 10% and 12% per year respectively. Project profits are estimated to be GHc100,000 and GHc100,000 per year respectively for both projects starting at the end of year 1 till the end of their respective project lifespans.

Using the NPV approach, determine which project the company must invest in.