Financial Math Answers

Village Finance Co. advanced three loans to Kamiko—$4,200 on June 20, $3,800 on August 25,and $3,300 on October 29. Simple interest at 8.25% was charged on all three loans, and all were repaid on December 31 when some bonds that she owned matured. What total amount was required to pay off the loans?

James loves buying antique and sells it out someday. He loves so because he believes that it will give him more wealth. But James wants to maximize his profit by any mean. Given an antique that costs $2,000,000, and it inflates 6%, the bank rate is 12%, loan period is 20 years, payments and rates are considered annually. James has two plans: i. He borrows $2,000,000 to buy the antique. ii. Instead of buying the antique, James would use the annual payment to do investment in the stock market. Suppose it gives 12% annual return. Which plan will James choose if he wants to maximize his wealth after 20 years? 

Jonah invests R4500 in a savings account. The interest rate for the first 4 years is 9 % per year, compounded monthly, thereafter the interest rate changes to 10% per year, compounded half yearly, for the next 5 years. Determine the amount that Jonah will have in his savings account at the end of the term.

If an investment of $400 pays 8% simple interest per year, then what would be the value of the investment after 3 years

The demand and supply equations is 2p²+q²=11 and p+2q=7. Find the equilibrium price and quantity, where p stands for price and q stands for quantity.

After paying income taxes of 31% Andrew’s annual take-home income was 46.920. Calculate her income before taxes(gross income).

The revenues of a company increased by 31% in one year and decreased by 27% in year two. What is the overall change over the two-year period?

ABC Limited is looking at expanding its business and wants to invest in a new plant to boost its production capacity. The plant has a life of three years. The details are as follows.

 The plant would depreciate in three years from the acquiring cost of Rs. 4,20,000 to zero in three years. There would be no salvage value at the end of three years. The depreciation would be on a straight line basis.

 The additional revenue from the plant would be ~ Rs. 6,00,000 in year 1, Rs. 7,00,000 in year 2 and 3.

 The input cost (raw material) is expected to be ~ Rs. 3,00,000 for year 1 and 2 and Rs. 4,00,000 in year 3.

Assuming a tax rate of 30% and a discount rate of 20%, you are required to

1. Arrive at the expected annual cash flows (after-tax)

2. Compute the net present value of the investment and determine if the investment is financially viable?

As an Investment Banker your client, LMN Limited is looking at a restructuring its business. You extract the following data from the financials of the company.

Particulars Rs. Crs.

Equity capital (Face value Rs. 10) 1,000.00

Debentures (@ 12%) 400.00

Long Term unsecured loan (@15%) 200.00

Total 1,600.00

The company has been paying a dividend of 20% per annum (historically). The stock of LMN Limited is listed at Rs. 20 on the NSE. Compute the cost of:-

a. Equity capital.

b. Weighted Average cost of capital of LMN Limited

As an investor in the equity market you become aware of investment opportunity in 3

corporates. Assuming that the cost of equity is 8%, compute the fair value of X Limited,

Y Limited and Z Limited using the Dividend discount model.

a. Given the history of the company, X Limited is expected to pay a uniform dividend of Rs. 5.00 per share.

b. Being in the IT Industry, Y Limited is expected to pay a dividend of Rs. 4.00 per share

and an increase of 5% year on year thereafter.

c. A pharmaceutical company, Z Limited has been paying a dividend of Rs. 2.00 over for

the last 3 years. The company is expected to do extremely well and increase the dividend

pay-out by 7% year on year. This year the dividend expected is Rs. 8.00.

Additionally, what is the biggest lacuna in the Dividend Discount Model in valuing

stocks? Give an example to explain.