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FIN200: Business Finance01

48 min read
Posted on 
April 8th, 2025
Home Uncategorized FIN200: Business Finance01
Answer:
 

Part A:

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Office Building

 $                   25,00,00,000

Million

Loan to value ratio

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80%

 

Loan amount

 $                   20,00,00,000

 

Year

10 years

 

Interest rate

8%

 

Payment

Monthly Payment

 

1.1)

Calculation of monthly payment

Loan

 $     2,00,00,000

Tenure (months)

120

Interest rate monthly

0.67%

EMI

$2,42,655

 

 
EMI of the company is $ 2,42,655.

1.2)

Calculation of monthly interest

 NA1005

 

Loan amount

$2,00,00,000

EMI

$2,42,655

Interest amount (Balance loan amount * interest rate)

$1,33,333

(Tucker, 2011)

Interest payment of the company for first month would be $ 1,33,333.

1.3)

Calculation of monthly interest

Loan amount

$2,00,00,000

EMI

$2,42,655

Interest amount (Balance loan amount * interest rate)

$1,33,333

Principle amount (EMI – Interest amount)

$1,09,322
Principle payment would be $ 1,09,322 of the company (Brigham & Ehrhardt, 2013).

1.4)

Que 1d)

 

Calculation of loan amount after 3 year

Loan

$2,00,00,000

Less: total Principle amount in 3 years

          44,31,422

Balance Amount

  1,55,68,577.62

Loan Schedule

EMI No.

Opening balance loan

EMI

Interest

Closing balance loan

1

       2,00,00,000

  2,42,655.19

           1,33,333

          1,98,90,678

2

       1,98,90,678

  2,42,655.19

      1,32,604.52

          1,97,80,627

3

       1,97,80,627

  2,42,655.19

      1,31,870.85

          1,96,69,843

4

       1,96,69,843

  2,42,655.19

      1,31,132.29

          1,95,58,320

5

       1,95,58,320

  2,42,655.19

      1,30,388.80

          1,94,46,054

6

       1,94,46,054

  2,42,655.19

      1,29,640.36

          1,93,33,039

7

       1,93,33,039

  2,42,655.19

      1,28,886.93

          1,92,19,271

8

       1,92,19,271

  2,42,655.19

      1,28,128.47

          1,91,04,744

9

       1,91,04,744

  2,42,655.19

      1,27,364.96

          1,89,89,454

10

       1,89,89,454

  2,42,655.19

      1,26,596.36

          1,88,73,395

11

       1,88,73,395

  2,42,655.19

      1,25,822.63

          1,87,56,562

12

       1,87,56,562

  2,42,655.19

      1,25,043.75

          1,86,38,951

13

       1,86,38,951

  2,42,655.19

      1,24,259.67

          1,85,20,555

14

       1,85,20,555

  2,42,655.19

      1,23,470.37

          1,84,01,371

15

       1,84,01,371

  2,42,655.19

      1,22,675.80

          1,82,81,391

16

       1,82,81,391

  2,42,655.19

      1,21,875.94

          1,81,60,612

17

       1,81,60,612

  2,42,655.19

      1,21,070.75

          1,80,39,028

18

       1,80,39,028

  2,42,655.19

      1,20,260.18

          1,79,16,633

19

       1,79,16,633

  2,42,655.19

      1,19,444.22

          1,77,93,422

20

       1,77,93,422

  2,42,655.19

      1,18,622.81

          1,76,69,389

21

       1,76,69,389

  2,42,655.19

      1,17,795.93

          1,75,44,530

22

       1,75,44,530

  2,42,655.19

      1,16,963.53

          1,74,18,838

23

       1,74,18,838

  2,42,655.19

      1,16,125.59

          1,72,92,309

24

       1,72,92,309

  2,42,655.19

      1,15,282.06

          1,71,64,936

25

       1,71,64,936

  2,42,655.19

      1,14,432.90

          1,70,36,713

26

       1,70,36,713

  2,42,655.19

      1,13,578.09

          1,69,07,636

27

       1,69,07,636

  2,42,655.19

      1,12,717.57

          1,67,77,699

28

       1,67,77,699

  2,42,655.19

      1,11,851.32

          1,66,46,895

29

       1,66,46,895

  2,42,655.19

      1,10,979.30

          1,65,15,219

30

       1,65,15,219

  2,42,655.19

      1,10,101.46

          1,63,82,665

31

       1,63,82,665

  2,42,655.19

      1,09,217.77

          1,62,49,228

32

       1,62,49,228

  2,42,655.19

      1,08,328.18

          1,61,14,901

33

       1,61,14,901

  2,42,655.19

      1,07,432.67

          1,59,79,678

34

       1,59,79,678

  2,42,655.19

      1,06,531.19

          1,58,43,554

35

       1,58,43,554

  2,42,655.19

      1,05,623.69

          1,57,06,523

36

       1,57,06,523

  2,42,655.19

      1,04,710.15

          1,55,68,578

Total principle amount

    44,31,422.38

 

1.5)

In case of 8%

Total EMI amount

  2,03,83,035.85

Total interest amount

          48,14,458

 

          48,14,458

In case of 7%

Total EMI amount

          1,97,37,611

Total interest amount

             41,69,033

Refinanced cost

               2,50,000

 

             44,19,033

Que 1.5

Calculation of monthly payment

Loan

 $   1,55,68,578

Tenure (months)

84

Interest rate monthly

0.58%

EMI

$2,34,972

Loan Schedule

EMI No.

Opening balance loan

EMI

Interest

Closing balance loan

37

       1,55,68,578

  2,42,655.19

           1,03,791

          1,54,29,713

38

       1,54,29,713

  2,42,655.19

           1,02,865

          1,52,89,923

39

       1,52,89,923

  2,42,655.19

           1,01,933

          1,51,49,200

40

       1,51,49,200

  2,42,655.19

           1,00,995

          1,50,07,540

41

       1,50,07,540

  2,42,655.19

           1,00,050

          1,48,64,935

42

       1,48,64,935

  2,42,655.19

              99,100

          1,47,21,379

43

       1,47,21,379

  2,42,655.19

              98,143

          1,45,76,866

44

       1,45,76,866

  2,42,655.19

              97,179

          1,44,31,390

45

       1,44,31,390

  2,42,655.19

              96,209

          1,42,84,944

46

       1,42,84,944

  2,42,655.19

              95,233

          1,41,37,522

47

       1,41,37,522

  2,42,655.19

              94,250

          1,39,89,117

48

       1,39,89,117

  2,42,655.19

              93,261

          1,38,39,723

49

       1,38,39,723

  2,42,655.19

              92,265

          1,36,89,332

50

       1,36,89,332

  2,42,655.19

              91,262

          1,35,37,939

51

       1,35,37,939

  2,42,655.19

              90,253

          1,33,85,537

52

       1,33,85,537

  2,42,655.19

              89,237

          1,32,32,119

53

       1,32,32,119

  2,42,655.19

              88,214

          1,30,77,678

54

       1,30,77,678

  2,42,655.19

              87,185

          1,29,22,207

55

       1,29,22,207

  2,42,655.19

              86,148

          1,27,65,700

56

       1,27,65,700

  2,42,655.19

              85,105

          1,26,08,149

57

       1,26,08,149

  2,42,655.19

              84,054

          1,24,49,549

58

       1,24,49,549

  2,42,655.19

              82,997

          1,22,89,890

59

       1,22,89,890

  2,42,655.19

              81,933

          1,21,29,168

60

       1,21,29,168

  2,42,655.19

              80,861

          1,19,67,374

61

       1,19,67,374

  2,42,655.19

              79,782

          1,18,04,501

62

       1,18,04,501

  2,42,655.19

              78,697

          1,16,40,543

63

       1,16,40,543

  2,42,655.19

              77,604

          1,14,75,491

64

       1,14,75,491

  2,42,655.19

              76,503

          1,13,09,339

65

       1,13,09,339

  2,42,655.19

              75,396

          1,11,42,079

66

       1,11,42,079

  2,42,655.19

              74,281

          1,09,73,705

67

       1,09,73,705

  2,42,655.19

              73,158

          1,08,04,208

68

       1,08,04,208

  2,42,655.19

              72,028

          1,06,33,580

69

       1,06,33,580

  2,42,655.19

              70,891

          1,04,61,816

70

       1,04,61,816

  2,42,655.19

              69,745

          1,02,88,906

71

       1,02,88,906

  2,42,655.19

              68,593

          1,01,14,844

72

       1,01,14,844

  2,42,655.19

              67,432

             99,39,621

73

          99,39,621

  2,42,655.19

              66,264

             97,63,230

74

          97,63,230

  2,42,655.19

              65,088

             95,85,663

75

          95,85,663

  2,42,655.19

              63,904

             94,06,912

76

          94,06,912

  2,42,655.19

              62,713

             92,26,969

77

          92,26,969

  2,42,655.19

              61,513

             90,45,827

78

          90,45,827

  2,42,655.19

              60,306

             88,63,478

79

          88,63,478

  2,42,655.19

              59,090

             86,79,912

80

          86,79,912

  2,42,655.19

              57,866

             84,95,123

81

          84,95,123

  2,42,655.19

              56,634

             83,09,102

82

          83,09,102

  2,42,655.19

              55,394

             81,21,841

83

          81,21,841

  2,42,655.19

              54,146

             79,33,332

84

          79,33,332

  2,42,655.19

              52,889

             77,43,565

85

          77,43,565

  2,42,655.19

              51,624

             75,52,534

86

          75,52,534

  2,42,655.19

              50,350

             73,60,229

87

          73,60,229

  2,42,655.19

              49,068

             71,66,642

88

          71,66,642

  2,42,655.19

              47,778

             69,71,764

89

          69,71,764

  2,42,655.19

              46,478

             67,75,587

90

          67,75,587

  2,42,655.19

              45,171

             65,78,103

91

          65,78,103

  2,42,655.19

              43,854

             63,79,302

92

          63,79,302

  2,42,655.19

              42,529

             61,79,175

93

          61,79,175

  2,42,655.19

              41,195

             59,77,714

94

          59,77,714

  2,42,655.19

              39,851

             57,74,911

95

          57,74,911

  2,42,655.19

              38,499

             55,70,755

96

          55,70,755

  2,42,655.19

              37,138

             53,65,238

97

          53,65,238

  2,42,655.19

              35,768

             51,58,351

98

          51,58,351

  2,42,655.19

              34,389

             49,50,085

99

          49,50,085

  2,42,655.19

              33,001

             47,40,430

100

          47,40,430

  2,42,655.19

              31,603

             45,29,378

101

          45,29,378

  2,42,655.19

              30,196

             43,16,919

102

          43,16,919

  2,42,655.19

              28,779

             41,03,043

103

          41,03,043

  2,42,655.19

              27,354

             38,87,741

104

          38,87,741

  2,42,655.19

              25,918

             36,71,005

105

          36,71,005

  2,42,655.19

              24,473

             34,52,823

106

          34,52,823

  2,42,655.19

              23,019

             32,33,186

107

          32,33,186

  2,42,655.19

              21,555

             30,12,086

108

          30,12,086

  2,42,655.19

              20,081

             27,89,511

109

          27,89,511

  2,42,655.19

              18,597

             25,65,453

110

          25,65,453

  2,42,655.19

              17,103

             23,39,900

111

          23,39,900

  2,42,655.19

              15,599

             21,12,845

112

          21,12,845

  2,42,655.19

              14,086

             18,84,275

113

          18,84,275

  2,42,655.19

              12,562

             16,54,182

114

          16,54,182

  2,42,655.19

              11,028

             14,22,554

115

          14,22,554

  2,42,655.19

                9,484

             11,89,383

116

          11,89,383

  2,42,655.19

                7,929

               9,54,657

117

            9,54,657

  2,42,655.19

                6,364

               7,18,366

118

            7,18,366

  2,42,655.19

                4,789

               4,80,500

119

            4,80,500

  2,42,655.19

                3,203

               2,41,048

120

            2,41,048

  2,42,655.19

                1,607

                         (0)

Loan Schedule

EMI No.

Opening balance loan

EMI

Interest

Closing balance loan

37

      1,55,68,578

       2,34,972

        90,817

 1,54,24,423

38

      1,54,24,423

       2,34,972

        89,976

 1,52,79,427

39

      1,52,79,427

       2,34,972

        89,130

 1,51,33,585

40

      1,51,33,585

       2,34,972

        88,279

 1,49,86,893

41

      1,49,86,893

       2,34,972

        87,424

 1,48,39,345

42

      1,48,39,345

       2,34,972

        86,563

 1,46,90,936

43

      1,46,90,936

       2,34,972

        85,697

 1,45,41,662

44

      1,45,41,662

       2,34,972

        84,826

 1,43,91,517

45

      1,43,91,517

       2,34,972

        83,951

 1,42,40,496

46

      1,42,40,496

       2,34,972

        83,070

 1,40,88,594

47

      1,40,88,594

       2,34,972

        82,183

 1,39,35,806

48

      1,39,35,806

       2,34,972

        81,292

 1,37,82,126

49

      1,37,82,126

       2,34,972

        80,396

 1,36,27,550

50

      1,36,27,550

       2,34,972

        79,494

 1,34,72,073

51

      1,34,72,073

       2,34,972

        78,587

 1,33,15,688

52

      1,33,15,688

       2,34,972

        77,675

 1,31,58,392

53

      1,31,58,392

       2,34,972

        76,757

 1,30,00,177

54

      1,30,00,177

       2,34,972

        75,834

 1,28,41,040

55

      1,28,41,040

       2,34,972

        74,906

 1,26,80,975

56

      1,26,80,975

       2,34,972

        73,972

 1,25,19,976

57

      1,25,19,976

       2,34,972

        73,033

 1,23,58,037

58

      1,23,58,037

       2,34,972

        72,089

 1,21,95,154

59

      1,21,95,154

       2,34,972

        71,138

 1,20,31,321

60

      1,20,31,321

       2,34,972

        70,183

 1,18,66,532

61

      1,18,66,532

       2,34,972

        69,221

 1,17,00,782

62

      1,17,00,782

       2,34,972

        68,255

 1,15,34,065

63

      1,15,34,065

       2,34,972

        67,282

 1,13,66,376

64

      1,13,66,376

       2,34,972

        66,304

 1,11,97,708

65

      1,11,97,708

       2,34,972

        65,320

 1,10,28,056

66

      1,10,28,056

       2,34,972

        64,330

 1,08,57,415

67

      1,08,57,415

       2,34,972

        63,335

 1,06,85,778

68

      1,06,85,778

       2,34,972

        62,334

 1,05,13,141

69

      1,05,13,141

       2,34,972

        61,327

 1,03,39,496

70

      1,03,39,496

       2,34,972

        60,314

 1,01,64,838

71

      1,01,64,838

       2,34,972

        59,295

    99,89,161

72

         99,89,161

       2,34,972

        58,270

    98,12,460

73

         98,12,460

       2,34,972

        57,239

    96,34,727

74

         96,34,727

       2,34,972

        56,203

    94,55,958

75

         94,55,958

       2,34,972

        55,160

    92,76,147

76

         92,76,147

       2,34,972

        54,111

    90,95,286

77

         90,95,286

       2,34,972

        53,056

    89,13,370

78

         89,13,370

       2,34,972

        51,995

    87,30,393

79

         87,30,393

       2,34,972

        50,927

    85,46,349

80

         85,46,349

       2,34,972

        49,854

    83,61,231

81

         83,61,231

       2,34,972

        48,774

    81,75,034

82

         81,75,034

       2,34,972

        47,688

    79,87,750

83

         79,87,750

       2,34,972

        46,595

    77,99,373

84

         77,99,373

       2,34,972

        45,496

    76,09,898

85

         76,09,898

       2,34,972

        44,391

    74,19,318

86

         74,19,318

       2,34,972

        43,279

    72,27,625

87

         72,27,625

       2,34,972

        42,161

    70,34,815

88

         70,34,815

       2,34,972

        41,036

    68,40,880

89

         68,40,880

       2,34,972

        39,905

    66,45,813

90

         66,45,813

       2,34,972

        38,767

    64,49,609

91

         64,49,609

       2,34,972

        37,623

    62,52,260

92

         62,52,260

       2,34,972

        36,472

    60,53,760

93

         60,53,760

       2,34,972

        35,314

    58,54,102

94

         58,54,102

       2,34,972

        34,149

    56,53,280

95

         56,53,280

       2,34,972

        32,977

    54,51,286

96

         54,51,286

       2,34,972

        31,799

    52,48,113

97

         52,48,113

       2,34,972

        30,614

    50,43,756

98

         50,43,756

       2,34,972

        29,422

    48,38,206

99

         48,38,206

       2,34,972

        28,223

    46,31,457

100

         46,31,457

       2,34,972

        27,017

    44,23,502

101

         44,23,502

       2,34,972

        25,804

    42,14,335

102

         42,14,335

       2,34,972

        24,584

    40,03,947

103

         40,03,947

       2,34,972

        23,356

    37,92,332

104

         37,92,332

       2,34,972

        22,122

    35,79,482

105

         35,79,482

       2,34,972

        20,880

    33,65,391

106

         33,65,391

       2,34,972

        19,631

    31,50,051

107

         31,50,051

       2,34,972

        18,375

    29,33,454

108

         29,33,454

       2,34,972

        17,112

    27,15,595

109

         27,15,595

       2,34,972

        15,841

    24,96,464

110

         24,96,464

       2,34,972

        14,563

    22,76,055

111

         22,76,055

       2,34,972

        13,277

    20,54,361

112

         20,54,361

       2,34,972

        11,984

    18,31,373

113

         18,31,373

       2,34,972

        10,683

    16,07,084

114

         16,07,084

       2,34,972

          9,375

    13,81,487

115

         13,81,487

       2,34,972

          8,059

    11,54,574

116

         11,54,574

       2,34,972

          6,735

      9,26,338

117

           9,26,338

       2,34,972

          5,404

      6,96,770

118

           6,96,770

       2,34,972

          4,064

      4,65,863

119

           4,65,863

       2,34,972

          2,718

      2,33,609

120

           2,33,609

       2,34,972

          1,363

                  0

1.6)

Calculation of quarterly payment

Loan

 $    2,00,00,000

Tenure (months)

40

Interest rate monthly

1.75%

EMI

$6,99,442

1.7)

Que 1 g)

 

Calculation of quarterly payment

Loan

 $    2,00,00,000

Tenure (months)

40

Interest rate monthly

1.75%

EMI

$6,99,442

Amount after 3 years

       1,53,78,596

Loan Schedule

EMI No.

Opening balance loan

EMI

Interest

Closing balance loan

1

       2,00,00,000

       6,99,442

           3,50,000

          1,96,50,558

2

       1,96,50,558

       6,99,442

           3,43,885

          1,92,95,001

3

       1,92,95,001

       6,99,442

           3,37,663

          1,89,33,222

4

       1,89,33,222

       6,99,442

           3,31,331

          1,85,65,111

5

       1,85,65,111

       6,99,442

           3,24,889

          1,81,90,559

6

       1,81,90,559

       6,99,442

           3,18,335

          1,78,09,452

7

       1,78,09,452

       6,99,442

           3,11,665

          1,74,21,676

8

       1,74,21,676

       6,99,442

           3,04,879

          1,70,27,113

9

       1,70,27,113

       6,99,442

           2,97,974

          1,66,25,646

10

       1,66,25,646

       6,99,442

           2,90,949

          1,62,17,153

11

       1,62,17,153

       6,99,442

           2,83,800

          1,58,01,511

12

       1,58,01,511

       6,99,442

           2,76,526

          1,53,78,596

1.8)

Calculation of annual % rate

Interest rate

8.00%

1.9)

Calculation of Effective annual rate

Interest rate

8.00%

Compounding monthly

12

EAR

8.30%

Part B:

2.1)

Calculation of required return

Face value

 $           100

Time

10

Current selling price

 $        78.12

Required rate of return

3.28%

2.2)

Calculation of bond return

Market price

 $           100

time

 $          9.00

Rate

3.50%

Loss

 $          4.75

2.3)

C

=

 $      25.00

T

=

9

R

=

3.50%

F

=

 $ 1,000.00

Bond value

=

C*[{1-1/(1+r)^t}/r]+[F/(1+r)^t

Bond Value

=

 $    923.92

Loss

=

 $      76.08

Comparison

 

 

Part b

 

 

Loss Percentage

=

6.08%

Part c

 

 

Loss percentage

=

8.23%
It explains that the first option is far better than first option.

Part C:

Quarterly dividend

 $   3.28

 

 

 

 

Past quarterly dividend

 $   3.12

 

 

 

 

Growth rate

5%

 

 

 

 

Market return

11%

 

 

 

 

Next annual dividend

 $   3.70

 

 

 

 

Calculation of cost of Share price

 

 

 

Dividend expected

 $   3.70

 

 

 

 

Growth rate

5%

 

 

 

 

Rate of return

11.00%

 

 

 

 

Share price

 $ 61.67

 

 

 

 

Formula = Growth rate = (dividend/ share price)- cost of equity

Calculation of required rate of return

 

 

 

 

Dividend expected

 $   3.75

 

 

 

 

Growth rate

5%

 

 

 

 

Share price

 $ 61.67

 

 

 

 

Rate of return

11.08%

 

 

 

 

(Niu, 2006)

Part D:

A)

Systematic risk

B)

Unsystematic risk

C)

Systematic risk

D)

Unsystematic risk

E)

Systematic risk

Part E)

Year

Cash Flows

1

 $         18,000

2

 $         22,500

3

 $         27,000

4

 $         31,500

5

 $         36,000

 

5.1)

Payback period

 

 

 

Time

Cash Flow

Cumulative Cash Flow

 

 

 

0

 $        -85,000

 $          -85,000

1

 $         18,000

-62500

2

 $         22,500

-35500

3

 $         27,000

-4000

4

 $         31,500

32000

5

 $         36,000

32000

 

 

 

Payback Period

 

3.13

 

5.2)

Net Present Value

Time

Cash Flow

Discount rate

Cash flow

 

 

 

 

0

 $        -85,000

1

-85000

1

 $         18,000

0.893

16071

2

 $         22,500

0.797

17937

3

 $         27,000

0.712

19218

4

 $         31,500

0.636

20019

5

 $         36,000

0.567

20427

Net Present Value

8673

 

5.3)

Calculation of IRR

Year

Cash Flows

0

 $        -85,000

1

 $         18,000

2

 $         22,500

3

 $         27,000

4

 $         31,500

5

 $         36,000

IRR

16%

(Nobes & Parker, 2008)

5.4)

According to the above evaluation through the capital investment appraisal techniques on the given project, it has been evaluated that the payback period of the company is 3.13 year and the net present value of the company is position i.e. $ 8673. And the internal rate of return calculation explains about the total return of 16% which explains that the proposal is quite better and company could accept it after evaluating the WACC of the company.

Part F)

6.1)

Net Present Value

 

Net Present Value

Time

Cash Flow

Discount rate

Cash flow

 

Time

Cash Flow

Discount rate

Cash flow

 

 

 

 

 

 

 

 

 

0

 $  -90,00,000

1

-9000000

 

0

 $ -10,00,000

1

-1000000

1

 $   35,00,000

0.87

3043478

 

1

 $    6,00,000

0.87

521739

2

 $   30,00,000

0.76

2268431

 

2

 $    5,00,000

0.76

378072

3

 $   30,00,000

0.66

1972549

 

3

 $    4,00,000

0.66

263006

4

 $   28,00,000

0.57

1600909

 

4

 $    3,00,000

0.57

171526

5

 $   25,00,000

0.50

1242942

 

5

 $    2,00,000

0.50

99435

Net Present Value

 $    11,28,309

 

Net Present Value

 $ 4,33,779

NPV of first project is $ 11,28,309 and the Second project’s NPV is $ 4,33,779 which explains that project A is better.

6.2)

Calculation of IRR

 

Calculation of IRR

Year

Cash Flows

 

Year

Cash Flows

0

 $  -90,00,000

 

0

 $ -10,00,000

1

 $   35,00,000

 

1

 $    6,00,000

2

 $   30,00,000

 

2

 $    5,00,000

3

 $   30,00,000

 

3

 $    4,00,000

4

 $   28,00,000

 

4

 $    3,00,000

5

 $   25,00,000

 

5

 $    2,00,000

IRR

20%

 

IRR

36%

Internal rate of return of project B is higher that means project B is better than project A.

6.3)

The above calculations brief that the NPV of first project is $ 11,28,309 and the Second project’s NPV is $ 4,33,779 which explains that project A is better. On the other hand, internal rate of return of project B is higher that means project B is better than project A. these conflicts have arisen due to various different methods. It depends on the company to choose the best project.

Part G)

Year

Project A

P.V. factor

Present value

0

 $ -20,000

1

-20000

1

 $    3,000

0.86957

2609

2

 $    3,000

0.75614

2268

3

 $    3,000

0.65752

1973

4

 $    3,000

0.57175

1715

5

 $    3,000

0.49718

1492

6

 $    3,000

0.43233

1297

7

 $    3,000

0.37594

1128

8

 $    3,000

0.3269

981

9

 $    3,000

0.28426

853

10

 $    3,000

0.24718

742

NPV

-4943.69

 

Year

Project A

P.V. factor

Present value

0

 $    -6,00,000

1

-600000

1

 $     1,20,000

0.86957

104348

2

 $     1,45,000

0.75614

109641

3

 $     1,70,000

0.65752

111778

4

 $     1,90,000

0.57175

108633

5

 $     2,20,000

0.49718

109379

6

 $     2,40,000

0.43233

103759

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NPV

47537.04

(Brigham & Houston, 2012)

Year

Project C

P.V. factor

Present value

0

 $-1,50,000.00

1

-150000

1

 $     18,000.00

0.86957

15652

2

 $     17,000.00

0.75614

12854

3

 $     16,000.00

0.65752

10520

4

 $     15,000.00

0.57175

8576

5

 $     15,000.00

0.49718

7458

6

 $     14,000.00

0.43233

6053

7

 $     13,000.00

0.37594

4887

8

 $     12,000.00

0.3269

3923

9

 $     11,000.00

0.28426

3127

10

 $     10,000.00

0.24718

2472

NPV

-74478

Year

Project A

P.V. factor

Present value

0

 $ -1,00,000

1

-100000

1

 $             –   

0.86957

0

2

 $             –   

0.75614

0

3

 $             –   

0.65752

0

4

 $     25,000

0.57175

14294

5

 $     36,000

0.49718

17898

6

 $             –   

0.43233

0

7

 $     60,000

0.37594

22556

8

 $     72,000

0.3269

23537

9

 $     84,000

0.28426

23878

10

 

 

 

NPV

2163.39

The above table explains about the profitability position of entire 4 projects. It explains that the Project B, C and D would offer positive returns to the company whereas project A would offer negative returns, so company should accept the project B, C and D only.

Part H)

Cash Flows

Alpha

Beta

Gamma

($ in millions)

($ in millions)

($ in millions)

Initial Outflow

– 1.5

– 0.4

– 7.5

Year 1

0.3

0.1

2

Year 2

0.5

0.2

3

Year 3

0.5

0.2

2

Year 4

0.4

0.1

1.5

Year 5

0.3

– 0.2

5.5

(Ward, 2012)

8.1)

 

Payback period

 

Payback period

  

 

 

 

 

 

 

 

 

 

Time

Cash Flow

Cumulative Cash Flow

Time

Cash Flow

Cumulative Cash Flow

Time

Cash Flow

Cumulative Cash Flow

 

($ in millions)

($ in millions)

 

($ in millions)

($ in millions)

 

($ in millions)

($ in millions)

0

 $         -1.50

 $     -1.50

0

 $  -0.40

 $    -0.40

0

 $  -7.50

 $  -7.50

1

 $           0.30

 $     -1.00

1

 $   0.10

 $    -0.20

1

 $   2.00

 $  -4.50

2

 $           0.50

 $     -0.50

2

 $   0.20

 $         –   

2

 $   3.00

 $  -2.50

3

 $           0.50

 $     -0.10

3

 $   0.20

 $     0.10

3

 $   2.00

 $  -1.00

4

 $           0.40

 $       0.20

4

 $   0.10

 $     0.20

4

 $   1.50

 $   4.50

5

 $           0.30

 $       0.20

5

 – 0.2

 $     0.20

5

 $   5.50

 $   4.50

 

 

 

 

 

 

 

 

 

Payback Period

 

3.25

Payback Period

 

2.00

Payback Period

 

3.67

8.2)

The table and calculation express that Alpha is better project than other projects. If the cut off payback period is concerned, than project Alpha is required.

8.3)

In case of shortest payback period, project Beta should be accepted by the company.

8.4)

Payback period

 

Payback period

 

Payback period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time

Cash Flow

Discounted payback

Cumulative Cash Flow

 

Time

Cash Flow

Discounted payback

Cumulative Cash Flow

 

Time

Cash Flow

Discounted payback

Cumulative Cash Flow

 

($ in millions)

 

($ in millions)

 

 

($ in millions)

($ in millions)

 

 

 

($ in millions)

($ in millions)

 

0

-1.5

-1.30

-1.30

 

0

-0.4

-0.35

-0.35

 

0

 $  -7.50

-6.52

-6.52

1

0.3

0.26

-1.04

 

1

0.1

0.09

-0.26

 

1

 $   2.00

1.74

-4.78

2

0.5

0.43

-0.61

 

2

0.2

0.17

-0.09

 

2

 $   3.00

2.61

-2.17

3

0.5

0.43

-0.17

 

3

0.2

0.17

0.09

 

3

 $   2.00

1.74

-0.43

4

0.4

0.35

0.17

 

4

0.1

0.09

0.17

 

4

 $   1.50

1.30

0.87

5

0.3

0.26

0.43

 

5

-0.2

-0.17

0.00

 

5

 $   5.50

4.78

5.65

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payback Period

 

 

3.50

 

Payback Period

 

 

2.50

 

Payback Period

 

 

0.70
Alpha project is performing well.

8.5)

Alpha project must be accepted by the company.

8.6)

In case of higher opportunity cost, Gamma project must be accepted by the company. 

Part I)

Financial Data

Description

 

Unilever plc

 

 

2017

2016

2015

2014

2013

Revenue

 

52713000000

53272000000

48436000000

49797000000

51324000000

Cost of goods sold

 

26356500000

26636000000

24218000000

24898500000

25662000000

Gross profit

 

26356500000

26636000000

24218000000

24898500000

25662000000

Operating profit

 

52713000000

53272000000

48436000000

49797000000

51324000000

Net profit

 

5184000000

4909000000

5171000000

4842000000

4480000000

Interest

 

568000000

568000000

568000000

568000000

568000000

Inventory

 

4278000000

0

0

3937000000

4436000000

Cash and cash equivalents

 

3382000000

3382000000

3382000000

3382000000

3382000000

Current assets

 

13884000000

12686000000

12347000000

12122000000

12147000000

Receivables

 

3329000000

4804000000

5029000000

4831000000

4436000000

Current liabilities

 

20556000000

20019000000

19642000000

17382000000

15815000000

Payables

 

568000000

0

383000000

500000000

526000000

Shares

 

2840200000

2840200000

2840200000

2840200000

2840200000

Equity

 

16354000000

15439000000

13651000000

14344000000

15159000000

Total liabilities

 

40075000000

36859000000

34376000000

31169000000

31007000000

Total assets

 

56429000000

52298000000

48027000000

45513000000

46166000000

Market share price

 

57.89

0

0

0

0

Long-term debt

 

10933000000

10933000000

10933000000

10933000000

10933000000

Description

Formula

Unilever plc

 

 

2017

2016

2015

2014

2013

Profitability

 

 

 

 

 

 

Return on equity

Net profit/revenues

9.83%

9.21%

10.68%

9.72%

8.73%

Return on assets

Net profit/Equity

31.70%

31.80%

37.88%

33.76%

29.55%

Profit margin

Net profit / Sales

9.83%

9.21%

10.68%

9.72%

8.73%

Asset turnover

total assets / total sales *365

390.73

358.33

361.92

333.60

328.32

Price earnings ratio

Market value per share / Earnings per share

37.59

 

 

 

 

Liquidity

 

 

 

 

 

 

Cash ratio

cash equivalents + cash / current liabilities

0.675

0.634

0.629

0.697

0.768

Capital intensity ratio

Total assets /sales

               1.07

               0.98

               0.99

               0.91

               0.90

Quick Ratio

Current assets-Inventory/current liabilities

             (0.04)

               0.17

               0.17

             (0.03)

             (0.07)

Solvency

 

 

 

 

 

 

Times interest earned

EBIT / Interest expenses

92.80

93.79

85.27

87.67

90.36

Long term debt ratio

Long term debt/ total assets

               0.19

               0.21

               0.23

               0.24

               0.24

Equity multiplier

Total assets / stockholder’s equity

               3.45

               3.39

               3.52

               3.17

               3.05

Part J)

10.1)

Calculation of cost of equity (CAPM)

 

Fire

Water

Air

RF

4.00%

4.00%

4.00%

RM

12.00%

12.00%

12.00%

Beta

0.85

1.25

1.6

Required rate of return

10.80%

14.00%

16.80%

10.2)

Name of Company

$m invested

Required rate of return

Probability

Portfolio rate

Fire

$2

10.80%

0.2

0.0216

Water

$3

14.00%

0.3

0.042

Air

$5

16.80%

0.5

0.084

TOTAL

$10

 

 

14.76%

10.3)

 

Beta

RF

4.00%

RM

12.00%

Required rate of return

14.76%

Beta

1.345

Calculation of required rate of return

RF

4.00%

RM

12.00%

Beta

1.345

Required rate of return

14.76%

10.4)

Name of Company

$m invested

Required rate of return

Probability

Portfolio rate

Water

 $         4.00

14.00%

0.3

0.042

Air

 $         6.00

16.80%

0.5

0.084

TOTAL

 $       10.00

 

 

12.60%

 

RM

 

 

 

RF

4.00%

 

 

 

RM

12.00%

 

 

 

Required rate of return

12.60%

 

 

 

Beta

1.075

 

 

 

Calculation of required rate of return

 

 

 

RF

4.00%

 

 

 

RM

12.00%

 

 

 

Beta

1.075

 

 

 

Required rate of return

12.60%

 

 

 

10.5)

The calculations brief that the changes have lowered the risk of the portfolio (Zimmerman & Yahya-Zadeh, 2011).

 
References:
Brigham, E. F., & Ehrhardt, M. C. (2013). Financial management: Theory & practice. Cengage Learning.

Brigham, E. F., & Houston, J. F. (2012). Fundamentals of financial management. Cengage Learning.

Ward, K. (2012). Strategic management accounting. Routledge.

Zimmerman, J. L., & Yahya-Zadeh, M. (2011). Accounting for decision making and control. Issues in Accounting Education, 26(1), 258-259.

EMI of the company
References

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