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BUSINESS FINANCE
 Category:Finance & Accounting
 Document type:Math Problem
 Level:Undergraduate
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 Words:417
Finance i
Finding Solutions to 13 Questions
Course Information
Professor Information
Question 1

Bank A:

Bank B:

Bank D:
According to the evaluations conducted above, Kate should choose investing in bank A since it has the highest future value of
.
Question 2
Savings for overseas holidays
Cash Deposit 

$ 12,000.00 
$ 17,169.23 

$ 14,000.00 
$ 17,776.29 

$ 16,000.00 
$ 18,029.20 

$ 20,000.00 
$ 20,000.00 

$ 72,974.71 
Question 3
Loan Amortization Schedule
Opening Balance 
Repayment 
Interest 
Principal 
Ending Balance 

($7,513.69) 
($2,400.00) 
($5,113.69) 
$24,886.31 

$24,886.31 
($7,513.69) 
($1,990.90) 
($5,522.79) 
$19,363.52 

$19,363.52 
($7,513.69) 
($1,549.08) 
($5,964.61) 
$13,398.90 

$13,398.90 
($7,513.69) 
($1,071.91) 
($6,441.78) 
$6,957.12 

$6,957.12 
($7,513.69) 
($556.57) 
($6,957.12) 
Amount to repay the bank after selling the car is the ending balance in year 3 of
.
Present value of the remaining 2 years:
The amount to repay after selling the car is the same as PV of the remaining 2 years as calculated above.
Question 4
Borrowed:
Rate increased to 7% p.a after 3 yrs. hence the amount of new repayment is obtained as follows:
Balance:
New repayment:
Question 5
Value of a bond:
Question 6
Calculating YTM:
Question 7
Calculating intrinsic value
Question 8
Implied RRR on preference share paying dividend of $0.60, currently trading at 4.50 per share:
Question 9
Question 10
Question 11
Question 12
Cash Flow 
Cumulative cash flow 
Discount Factor 
Present Value of Cash Flow 
Cumulative discounted cash flow 
Accounting income 

0 
($25,000) 
($25,000) 
($25,000.00) 
($25,000.00) 

($18,000) 
0.89285714 
$6,250.00 
($18,750.00) 

($10,000) 
0.79719388 
$6,377.55 
($12,372.45) 

0.71178025 
$8,541.36 
($3,831.09) 

0.63551808 
$9,532.77 
$5,701.69 

0.56742686 
$9,078.83 
$14,780.51 
Applying interpolation formula shown below:

Payback period

Discounted payback:
Recommendation: Accept the project because of the positive NPV. It is also clear that IRR of 30% is greater than cost of capital of. 12%.
Question 13
Projects are independent when decision to accept or reject one project is unaffected by acceptance or rejection of another project (Brigham and Ehrhardt, 2014).
Projects are mutually exclusive when acceptance of one project affects the decision made on another project.

Accept a project whose NPV is positive but reject a project whose NPV is negative
Accept projects whose PVI >1
Accept project whose IRR>Cost of capital, reject project whose IRR is <Cost of capital
Accept project with shorter payback period or a period less than target period
Discounted Payback
Accept project whose discounted payback period is less than predetermined discounted payback period. Otherwise reject the project
Accept project with a higher ARR
Reference
Brigham, E., & Ehrhardt, M. (2014). Financial Management: Theory & Practice. Mason, OH: Cengage Learning.