This document contains calculations related to financial management assignments. It includes calculations of bond prices using yield to maturity, stock valuation using the dividend valuation model, project valuation using net present value and internal rate of return, and equipment replacement analysis. Key figures calculated include yields to maturity of 9.63% and 9.62% for annual and semi-annual bond payments, stock prices of $24.50 and $24.15 using growth rates of 5% and required returns of 20% and 15%, and net present values and internal rates of return for various projects.
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This document contains calculations related to financial management assignments. It includes calculations of bond prices using yield to maturity, stock valuation using the dividend valuation model, project valuation using net present value and internal rate of return, and equipment replacement analysis. Key figures calculated include yields to maturity of 9.63% and 9.62% for annual and semi-annual bond payments, stock prices of $24.50 and $24.15 using growth rates of 5% and required returns of 20% and 15%, and net present values and internal rates of return for various projects.
This document contains calculations related to financial management assignments. It includes calculations of bond prices using yield to maturity, stock valuation using the dividend valuation model, project valuation using net present value and internal rate of return, and equipment replacement analysis. Key figures calculated include yields to maturity of 9.63% and 9.62% for annual and semi-annual bond payments, stock prices of $24.50 and $24.15 using growth rates of 5% and required returns of 20% and 15%, and net present values and internal rates of return for various projects.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOCX, PDF, TXT or read online from Scribd
This document contains calculations related to financial management assignments. It includes calculations of bond prices using yield to maturity, stock valuation using the dividend valuation model, project valuation using net present value and internal rate of return, and equipment replacement analysis. Key figures calculated include yields to maturity of 9.63% and 9.62% for annual and semi-annual bond payments, stock prices of $24.50 and $24.15 using growth rates of 5% and required returns of 20% and 15%, and net present values and internal rates of return for various projects.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOCX, PDF, TXT or read online from Scribd
When interest is compounded semi-annually, bondholders require a slightly lower rate of
return.
9-13) 14 $90 $1000 a) $1100 = ∑ + t=1 (1+i) (1+i)20 t
Yield to maturity i = 7.80%.
14 $90 $1000 b) Vb = ∑ + (1+0.1) (1+0.1)20 t t=1
Vb = $926.33.
c) At $1100, the bond is overvalued. I should not purchase it.
9-20) 20 $110 $1000 a) Vb = ∑ + t=1 (1+0.09) (1+0.09)20 t
Vb = $1182.57
b) i) If yield to maturity on comparable bonds increases to 12 percent, the value decreases to
$925.31.
ii) If yield to maturity on comparable bonds decreases to 6 percent, the value increases to $1573.50.
c) If the bond pays a higher rate than the required rate, then investors will be ready to pay a premium for the bond. Conversely, if the bond pays a lower rate than the required rate, then investors will not consider the bond to be as valuable, and will therefore buy it at a discount price. D1 10-3) Vcs = . k cs −g
Dividend after one year will be $3.50(1+0.05) = $3.675. Therefore, value of the Header Motor 3.675 common stock = = $24.50. 0.20−0.05
10-7)
a) g = ROE x r g = 0.20 x 0.25 = 0.05 = 5%. D1 = 2.30(1+0.05) = $2.42. D1 2.415 Vcs = = = $24.15. k cs −g 0.15−0.05 b) I shouldn’t purchase this stock, since it is overvalued at $33.
10-15)
D $6 Vps = = k ps 0.12 = $50.
10-18)
D $ 3.40 Vps = k ps = = $34. Since the shares are overvalued at $40, I should sell them at a 0.1 premium.
11-7) n FCF t a) IO = ∑ t=1 (1+IRR) t 10 1,993 10,000 = ∑ t=1 (1+IRR) t
IRR = 15.01% n FCF t b) IO = ∑ t=1 (1+IRR) t 20 2,054 10,000 = ∑ t=1 (1+IRR) t IRR = 20.00%
n FCF t c) IO = ∑ t=1 (1+IRR) t 12 1,993 10,000 = ∑ t=1 (1+IRR) t
IRR = 16.86% n FCF t d) IO = ∑ t=1 (1+IRR) t 5 2,843 10,000 = ∑ t=1 (1+IRR) t IRR = 13.00%
2,018,663.366 PI = = 1.04 1,950,000 n FCF t c) IO = ∑ t=1 (1+IRR) t
IRR = 10.17% d) This project should be accepted because the NPV is positive and hence the PI is greater than 1 and the IRR is greater than the required rate of 9%.
11-24)
a) Initial cash outlay - 80,000 Year 1 20,000 Year 2 20,000 Year 3 20,000 Year 4 20,000 Year 5 20,000 Year 6 20,000 Payback period = 4 years
Initial cash outlay - 80,000
Year 1 20,000 Year 2 20,000 Year 3 20,000 Year 4 20,000 Year 5 20,000 Year 6 20,000
Undiscounted Free Cash Flows Discounted Free Cash Flows Cumulative Discounted Free Cash Flows Year 0 - 80,000 - 80,000 - 80,000 Year 1 20,000 18,182 - 61,818 Year 2 20,000 16,529 - 45,289 Year 3 20,000 15,026 - 30,263 Year 4 20,000 13,660 - 16,603 Year 5 20,000 12,418 - 4,184 Year 6 20,000 11,289 7,105
Discounted payback period = (5 + (4184/11289)) years = 5.37 years
The machine has an initial investment of $110,000, annual cash flows of $33600 in the first 9 years, and a cash flow of $38,600 in the 10th year. NPV $ 59,866.55
Section 3 Revenue 21,000,000 36,000,000 36,000,000 24,000,000 17,500,000 Initial working capital requirement 200,000 Net working capital needs 2,100,000 3,600,000 3,600,000 2,400,000 1,750,000 Liquidation of working capital 1,750,000 Change in working capital 200,000 1,900,000 1,500,000 - - 1,200,000 - 2,400,000
Section 4 Operating cash flow - 7,950,000 13,230,000 13,230,000 9,006,000 5,640,000 Minus: change in net working capital 200,000 1,900,000 1,500,000 - - 1,200,000 - 2,400,000 Minus: change in capital spending 15,000,000 - - - - - Free cash flow - 15,200,000 6,050,000 11,730,000 13,230,000 10,206,000 8,040,000
NPV 17,461,989.11 PI 2.15 IRR 54.17% The project should definitely be accepted.
