Current ye 12/31/2021

Course enr 2022

Enrolments
Mode Total cy Total y1 Total Y2 Total y3 Total y4
ftf 200 280 360 400 460
ol 800 950 950 1150 1200

Average price
ftf 1800
ol 1400
Materials 80
fc 180000
dep 30000

Capital investment
Building co 900000
Equipment 200000
Scrap 20000
T 5

wda 0.18 W1
RBM Mode
Policy Dep in year of purch none in year of disposal ftf
Course infl 0.02 ol
General Inf 0.03 SP
Tax 0.19 SP
Policy 50/50 SR
coc 0.08 SR
Mats
a NPV
0 1 2 3 4 5 W2
Sales reve 1480000 1870680 2057911 2472615 2714740 Depreciation
Variable co -80000 -101352 -107944 -127720 -136784 Year
Fixed costs -180000 -180000 -180000 -180000 -180000 W1 1 180000
Total taxab 1220000 1589328 1769967 2164895 2397956 WDA 32400
Tax at 19% -109800 -143040 -159297 -194841 -215816 0 2 147600
Tax at 19% FY -109800 -143040 -159297 -194841 -215816 WDA 26568
Post tax 1110200 1336488 1467631 1810757 1987299 -215816 3 121032
Capital in -1100000 WDA 21785.76
Scrap value 20000 4 99246.24
Tax benefit of capital allo 3078 5601.96 4593.607 13398.04 11328.39 20000
Total cash 10200 1339566 1473233 1815351 2020697 -204488 Bal chg 119246.2
Discount fa 1 0.925926 0.857339 0.793832 0.73503 0.680583
Net cash f 10200 1240339 1263059 1441084 1485273 -139171
NPV 5300784.75523
Decision Accept project as it has a positive NPV

b
Sensitivity
What is the sensitivity of course enrolments FTF
What should they do because of this OT
What are the issues when calculating this DF
SUM
Mode 0 1 2 3 4 SUM
ftf 200 280 360 400 460
ol 800 950 950 1150 1200
SR 360000 514080 674179.2 764069.8 896253.8
SR 1120000 1356600 1383732 1708545 1818486
Sum 1480000 1870680 2057911 2472615 2714740 FTF
DF 1 0.925926 0.857339 0.793832 0.73503 OT
PV 1480000 1732111 1764327 1962841 1995415 DF @ .2
NPV 8934694.33013 SUM
Sensitivity 1.68554180988 SUM

Enroilments in the course can change by 68.55% before the project becomes unprofitable
They are relatively safe so they do noty need to change any processs
The issues in claculating sensitivity are that they weaken the impact of profits in later years

c
0 1 2 3 4 5
Lease pay -40000 -40000 -40000 1766928 1766928
Lease Tax 3600 7200 7200 7200 -318047 3600
PTI -1820 -1640 -1640 88706.41 72444.06
Net cash -38220 -34440 -34440 1862835 1521325 3600
DF @ 10% 1 0.925926 0.857339 0.793832 0.73503 0.680583
PV -38220 -31888.89 -29526.75 1478778 1118219 2450.1
NPV 2499812.13389

NPV Buy 5300784.75523

NPV Lease 2499812.13389

Therefore buy the equipment

1 2 3 4 5 1 2 3
200 280 360 400 460 800 950 950
0.90909090909 0.826446 0.751315 0.683013 0.620921 1 0.909091 0.826446 0.751315
181.818181818 231.405 270.4733 273.2054 285.6238 0 727.2727 785.124 713.7491
1242.52565957 4211.611
2236546.18723 5896256
2.37007614039 0.899009
Total cy Total y1 Total Y2 Total y3 Total y4
200 280 360 400 460
800 950 950 1150 1200
1800 1836 1872.72 1910.174 1948.378
1400 1428 1456.56 1485.691 1515.405
360000 514080 674179.2 764069.8 896253.8
1120000 1356600 1383732 1708545 1818486
-80000 -101352 -107944 -127720 -136784

6156

5047.92

4139.2944

22656.7856
 0 1 2 3 4 5
200 280 360 400 460
800 950 950 1150 1200
1 0.909091 0.826446 0.751315 0.683013
200 254.5455 297.5207 300.5259 314.1862
800 863.6364 785.124 864.012 819.6161
1366.7782255
4132.3884981
5499.1667236
0 1 2 3 4 5
200 280 360 400 460
800 950 950 1150 1200
1 0.833333 0.694444 0.578704 0.482253
800 863.6364 785.124 864.012 819.6161
800 719.697 545.225 500.007 395.2624
4132.3884981
2960.1913197
7092.5798177

a npva/ b-a
10 -3.451187 10 -24.51187

4
1150 1200
0.6830134554 1
785.46547367 1200
a
Cutting dividend may make shareholders loose faith in the company
They have not made an announcement and so are susceptible to arbitrage and insiuder trading
Dividents may not be used to provde an accurate valuer of the company
m&m
Traditional theory
Efficient markets

The fact that the company has decided to cut their dividends means that the ninvestors are likely going to loose faith in the co

b
The Eficient market hypothesis states that a share proice reflects all information both publicly availbale and not. The fact that

C £000'S
Osh 20000
Res 30000
9% Red bo 10000

OSP 7.35
MV 1.09
CTR 0.19

Div
0 60
1 55
2 44
3 37
4 32
5 31
Periods 4 5
Bonds redeemable afte
T 8
RP 0.05

Bonds

Year Coupon DF PV DF PV
0 -109 1 -109 1 -109
1 9 0.925926 8.333333 0.94339623 8.490566
2 9 0.857339 7.716049 0.88999644 8.009968
3 9 0.793832 7.14449 0.83961928 7.556574
4 9 0.73503 6.615269 0.79209366 7.128843
5 9 0.680583 6.125249 0.74725817 6.725324
6 9 0.63017 5.671527 0.70496054 6.344645
7 9 0.58349 5.251414 0.66505711 5.985514
 8 114 0.540269 61.59065 0.62741237 71.52501
-0.552017 12.76644

a+ npva/npvab-a KDAT
8 0.041447 2 8.08289496 6.547145

GGM
Div D0 *(1+G)/P0 +G
0 60
1 55
2 44
3 37
4 32
5 31

.=31*(1+g)^5/60+g
1+g^4= 31/60 1.935484
1.14119
9.457026
KE 9.457%

KDAT 6.547%
KE 9.457%

Weighting £ Weighting
Stock 147000 0.875521
Bonds 10900 0.06492
Reserves 10000 0.059559
167900

KE WE KD WD
9.457% 0.875521 6.547% 0.06492
0.082798 0.00425 8.705%
WACC for P 8.705

KD
4 Iredeemablew bonds
Volume 150000
£ 15000000

Weighting Volume
KDO 10900 0.072233
KDN 15000 0.099404 w1
Reserves 10000 0.066269 Buyback £
Shares 115000 0.762094 Shares 20000000
150900 Rev Raised 15000000
Shares bought baCK
Shares in c 2307692
17692308

KWDO KWDN KWE

0.004729 0.003221 0.072071 8.002%

New WACC 8.002%

Debtors are cheaper because you need topay them

You cant just default on debt and reduce the interest payment

The first factor that a company should consider is that a debtor is cheaper than a shareholder because their return is a lot safe
going to loose faith in the company and sell their shares or put out put options. They will also be susceptible to insider trading and arbitrag

ilbale and not. The fact that this is a board meeting means that the companies share price will drop once this information is announced.
ause their return is a lot safer. They can not just have their loan interest payment post-poned like a dividend would. They can also take leg
to insider trading and arbitrage iof this news gets out and so some investors may not be happy to continue investing because they may ho

s information is announced.
would. They can also take legal action against you should you not pay. Additional debt also increases the gearing and other ratios of the c
investing because they may hold the stock for a dividend based portfolio and if the company was to reduce the dividend they would sell th
aring and other ratios of the company and this means that they will be less attractive to equity financiang also.
the dividend they would sell the share and therefore the companies vlaue would drop. This would mean that the company could find it ha
t the company could find it harder to raise equity finance. According to Mogler and Moody this wouldnt be an issue as they would have to
n issue as they would have to use more debt finance however according to traditional theory this would increase the companies WACC m
rease the companies WACC making every project more expensive and therefore limiting what the company couold do.
Activity P DDR (Us) YYR(Comp)
Excellent 0.25 24000 8000
good 0.4 10000 12000
Poor 0.25 2000 16000

Activity P DDR (Us)

Excellent 0.25 24000 6000
good 0.4 10000 4000
Poor 0.25 2000 500
ER 10500

Ret P RI/P RI-R^"*P

6000 0.25 1500 1925156
4000 0.4 1600 240250
500 0.25 125 1856406
3225 4021813
Std Dev 2005.446

b
DDR YTR
Variance 4021813 12400000
STD DEV 2005.446 3072
RI-R 4019807 12396928

p Returns ER
0.25 4000
0.4 -800
0.25 -3500

c
In order to minimise rtisk a first tiem investor should put 40% of their investment inot YYR and 60% into DDR

What is an equity beta

An equity beat is the movement a companeies stock has with the index or in this case stock market. With DDR having a Equity
The Equity beta is used in the CAPM model to help reduce the impact of variance on a companies stock price when evaluating

e
This expansion into the cruise market will increase the cost of equity because there will be a lot of risk involved in this new ind
0% into DDR

ket. With DDR having a Equity beta of 1.9 this means that DDR's stock price moves by 1.9* the movement in the index. For example if the
es stock price when evaluating a company. More accurate betas are helpful because they will help an investor gauge if a stock is over or un
of risk involved in this new industry. The equity price may even decrease if the investors have faith in the company's leadership.
the index. For example if the index moved by 1 point then DDR's stock would move by 1.9
r gauge if a stock is over or under valued and therefore if they should buy nor not buy / sell.
mpany's leadership.
 1 2 3 1 2
Cost -15000 -15000
Trade in 6000 8000
Service -1100 -1200 -1400 -1100 -1200

Net -16100 -1200 4600 0 -16100 6800

DF 10% 0.90909090909 0.826446 0.751314801 1 0.9090909091 0.826446
PV -14636.3636364 -991.7355 3456.048084 0 -14636.36364 5619.835
NPV -12172.0510894 -9016.528926
AF 2.48685199098 1.7355371901
EAC -30270.0894861 -15648.52128

Decision Sell after 3 years

A
I

Joseph should sell after 3 years as it is the lowest cost to

his business. As it wuld cost his businessaround £15000
more to replace the cars after 2 years and not 3

ii
This decision would have had to be flexed more as the costs would have to be flexed and so would the prices. This means that

What is the current price of one HHY share

Next years Divid 75

Growth rate
COE

npv Div
1 0.87719298246 84 73.68421053
2 0.76946752847 94.08 72.39150508
3 0.6749715162 105.3696 71.12147867
4 0.59208027737 118.014 69.87373343
582.2811119
869.3520397
One HHY share is undervalued because it should be at a price of £8.69 not £8

Joseph could have made smaller sales or held less inventory this is a possible reason, TRF could have also taken longer to pay t
There are many parts to WCC calculations however the main 2 are inventory days and creditor days. If Joseph wanted to decre
Joseph could also pay his creditors faster as they also have an impact on the WCC calculation. By paying back creditors it reduc
ould the prices. This means that buying earlier has a greater impact and it could mean that selling after 2 years would be the better option
d have also taken longer to pay their creditors and this would have also had an impact.
days. If Joseph wanted to decrease his ratios then he could attempt to make larger volumes of sales as the inventory days calc is avg inv/a
By paying back creditors it reduces creditor days and another rpart of the equation is reduced
rs would be the better option.
nventory days calc is avg inv/avg sales *365 having more sales then decreases the number of days.