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FINANCIALMANAGEMENT

ASSIGNMENT

4/3/2010
7.1) V= Rs.11x PVIFA 15% 5Years + Rs. 100x PVIFA15% 5Years
= Rs.11x 3.352 +Rs.100x 0.497
= Rs. 86.57
7.2) V= Rs.12x PVIFA14% 7Years +Rs. 100x PVIFA14% 7Years
= Rs.12x 4.288+ Rs.100x 0.4
= Rs. 91.46
V= Rs.12x PVIFA12% 7Years + Rs.100x PVIFA12% 7Years
= Rs.12x 4.564+ Rs.100x 0.452
= Rs.99.97
120 + (1000 − 750 ) / 7
7.3) YTM=
0.4 ×1000 + 0.6 × 750

= 18.32%
14 + (100 − 80 ) / 10
7.4) YTM=
0.6 ×80 + 0.4 ×100

= 18.18%
7.5) P= 6x PVIFA8% 12Years+ 100x PVIFA8% 12Years
= 6x 7.536+ 100x 0.397
= 84.916≅ 84.92
7.6) Post Tax interest (C) A
B
12(1- 0.3) = 8.4
10(1- 0.3) = 7
Post tax maturity 100-[(100-70) x 0.1] 100-
[(100-60) x0.1]
value (M) =Rs. 97 =
Rs. 96
For A
8.4 + (97 − 70 ) / 10
Post Tax YTM= =13.74%
0.6 × 70 + 0.4 × 97

For B
7 + (96 − 60 ) / 6
Post Tax YTM= = 17.47%
0.6 × 60 + 0.4 × 96

7.7) P= Rs.6x PVIFA8% 14Years + Rs.100x PVIFA8% 14Years


= Rs.6x 8.244+ Rs.100x 0.34
= Rs.83.464
7.8) Do = Rs.2 g= 0.06 r= 0.12
D1 Do(1 + g ) 2 ×1.06
Po = = = = Rs .35 .33
r −g r −g 0.12 − 0.06

P2 = Po x (1+g)2
= 35.33(1.06)2 = 39.696≅ Rs.39.7
7.9) Do = 12 g= 0.1 r= 0.15
12 12
Po = =
0.15 − 0.1 0.05
= 240

P2 = Po x (1+g) = 240x 1.1= Rs. 264


7.10) Po = 32 Do =2 r= 0.12 g=?
Do (1 + g )
P2 = Po (1+g) = r −g

Do 2
∴ P2 = r −g
=
0.12 − g
= 32

∴ 2= 32(0.12- g)
= 3.84- 32g
∴ 32g= 1.84
∴ g= 5.75%
1.5(1 −0.04 )
7.11) 8=
r + 0.04

∴ 8r+0.32= 1.44
R= 0.14= 14%

7.12) D1=1.5*1.12=1.68
D2=1.68*1.12=1.882
D3=1.882*1.12=2.11
D4=2.11*1.12=2.36
D5=2.36*1.08=2.55
D6=2.55*1.08=2.75
D7=2.75*1.08=2.97
D8=2.97*1.08=3.21
Present Value
(@14%)=1.68*0.877+1.882*0.769+2.11*0.675+2.36*0.592+2
.55*0.519+2.75*0.456+2.97*0.4+3.21*0.35=10.63
Pg=Dg/(r-gn)=Dg(1+gn)/(r-gn)
=[1.5*1.124*1.084*1.05] /[0.14-0.05]
=37.46

Present Value=37.46/(1.148)=13.13

Sum of components=10.63+13.13=23.76

7.13) Do = 2 g= 15% g1= 10% n=5


D1= Do (1+g) = 2x (1.15) = 2.3
 1.15  
1 −1.12 ^5  2.3(1.15 )^ 4 (1.1) 1 
  +
Po = 2.3
 0 .12 − 0. 15 
  0 .12 − 0 . 1
×
(1. 12 )^ 5


 
 

 1.15 
1 −1.12 
  +[125 .54 ]
= 2.3
 −0.03 
 
 

= 127.84

7.14) Terminal Value= 140x PVIFA16% 4Years


= 140x 5.066
= 709.24
Redemption Value= 100
TV of proceeds= 1709.24
Let ‘r’ be YTM
900(1+r)4 = 1709.24
Hence, r=17.39%
 1.18  
1 −1.16 ^ 6 
   +2 ×1.18 ^5 ×1.12 ×1 /(1.16 )^ 6
7.15) P=2x 
 0.16 −0.18    0.16 −0.12


 
 

=74.79
7.16) D1=Do(1+g)=4x(1.2)=4.8

  1.2  
1 −1.18 ^8 
   +4.8 ×1.2^ 7 ×1.1×1 /(1.18 )^ 8
Po=4.8x 
 0.18 −.2    0.18 −0.1 

 
 

=28.78+52.43
=81.21
7.17) Po=D1/(r-g)
Po=8/(0.15-0.12)=266.67
Po=(E1/r)+PVGO
Hence, 266.67=(20/0.15)+PVGO
PVGO=133.34
MINI CASE (PAGE 325)-Solution
Cash flow from point of all investors

(all value in millions)


Year 1 Year 2 Year 3 Year 4 Year 5
Note 1
1. Revenue 30 30 30 30 30
2. Operating cost 20 20 20 20 20
Rent = 1 million = Opportunity Cost
3. Opportunity Cost 1 1 1 1 1
4. PBIDT(1-(2+3)) 9 9 9 9 9
5. Depreciation
Note 2 3.75 2.81 2.11 1.58 1.19
6. PBIT 5.25 6.19 6.89 7.42 7.81
7. Interest Calculating Depreciation Value
a)Working Capital Interest 0.7 0.7 0.7 0.7 0.7
b)Term LoanYear
Interest Cost Dep (25%) Written Down
24 24 16.8 7.2
8. PBT(PBIT-(a+b)) -19.45 Value-18.51 -10.61 -0.48 7.11
1 15.00 3.75 11.25
9. Tax(30%) 5.835 5.553 3.183 0.144 2.133
2 11.25 2.81 8.44
10. Profit After Tax(PBT-Tax) -13.615 -12.957 -7.427 -0.336 4.977
3 8.44 2.11 6.33
11. Depreciation 3.75 2.81 2.11 1.58 1.19
4 6.33 1.58 4.75
12. Add back Depreciation(PAT+ Dep) -9.865 -10.147 -5.317 1.244 6.167
5 4.75 1.19 3.56
13. Net Salvage Value 5
14. Working capital recovered 5
Note 3
Net Cash Inflow -9.865 -10.147 -5.317 1.244 16.167
Calculating Term Loan Interest

No of Loan CashInstallment
flow from pointInterest(12%)
of equity investors
Installment Amount
(all value in millions)
1 80 0 12
Year Year Year Year
2 80 0 12 1 2 Year 3 4 5
3 80 0 12 - -
1. Profit4After Tax 80 16 12 13.62 12.96 -7.43 -0.34 4.98
2. Addback
5 Depreciation 64 16 9.6 3.75 2.81 2.11 1.58 1.19
6 48 16 7.2 -
3. Profit Before Depreciation & After Tax -9.87 10.15 -5.32 1.24 6.17
7 32 16 4.8
4. Working Capital 5.00 5.00 5.00 5.00 5.00
8 16 16 2.4
5. Adjusted working capital -4.87 -5.15 -0.32 6.24 11.17
6. Repayment of Debt 0.00 16.00 32.00 32.00
- -
Cash flow from equity investors point of view -4.87 21.15 -32.32 25.76 11.17

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