Answer Key (PART 1&2)

1.a Free Cash Flow- The firm’s free cash flow represents the cash available to investors i.e creditors and 1.b $7.8
shareholders after the firm has met all of its obligations and paid for net investment in fixed and current Per
assets. Share

2.a If a bond is selling at the same price as is the face value of the bond, the bond is selling at Par as the 2.b $922.71
coupon rate and yield to maturity is same.

3.a $16.67 3.b $30

4.a 6.6% 4.b 6.2% 4.c 19% 4.d 10.22%

5 Annuity-X= $11733.20
Annuity-Y= $12671.86

Annuity-X is an Ordinary Annuity as it receives payment at end of

each year, whereas Annuity-Y is an Annuity Due as it receives
payment at the beginning of each year. Therefore, Annuity Due
will always generate more values as it has an additional year of
payment.

6.a PBPa=2 years 6.b NPVa= 6.c Bikash shouldn’t invest in any of the project as both the projects give negative
and 4 months ($87.12) net present values.
However, if he really wants to invest, he can invest in project A as the
PBPb= 2years NPVb= profitability index of project A is higher at 0.999.
and 2 months ($1295.31)