Program : Academic

Damat Hotel and Business College of Degree Year: 2024

Distance Education
Assignment One

Course title – Financial Management

Submission Date:- _____________________

Full Name: -
ID No.:-
Department:-
Coordination Center: -
1. Tesfaye wants to have a two million birr After 30 years. If Tesfaye has just turned an age of 25 how much
would he have to invest at the end of each year in order to have Br 2 million on his 55th birthday, assuming
that he is able to get a return on investment of 8 % per year? How much would he have to invest if he made
the investment at the end of each month instead?
2. If Tesfaye gets his Br. two million, how much could he afford to withdraw at the end of each month through
his 80th birthday that would leave him with a balance of zero at that time?
3. Selam want to purchase a home- furniture for her house. The seller is offer her the terms of no payments or
interest for one full year (the first payment is due in 365 days) and 2% per month thereafter. What would be
the monthly payments on a birr 15,000 purchase if there were to be 24 equal payments? Would you be better
off financing the purchase on a line of credit that charged 18% per annum with no interest free period?
4. Assume Dire Corporation currently pays Br 3.00 annual dividends per share, which expected to grow at a rate
of 4% per year, and has a required rate of return of 14% on the shares.
Required: what is the current price per share?
5. Assume Addiss. Inc. issued a bond with, a Br 1000 face value, and a coupon rate of 10% paid semiannually.
The bond has 20 Years remaining to maturity and it sale currently at Br. 910 price in bond market.
Required:-what is the yield to maturity (YTM) on the bonds?
6. The Sodo corporation has the following capital structure, which it considers optimal
Bonds, 7% (at par)……………. Br 450,000
Preferred stock,Br.5…………........ 360,000
Common stock …………………...480,000
Retained earnings ………………...450,000
Total…………………1,740,000
Additional Information:
 Dividends on common stock are currently Br 5 per share and are expected to grow at constant rate of
3%.
 Market price of common stock is Br 60 and the preferred stock is selling at Br 75.
 Flotation cost on new issues of common stock is 10%.
 The interest on bonds is paid annually and the company’s tax rate is 40%.

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 Required
i. Compute the cost of (a) bonds (b) preferred stock (c) retained earnings (d) common stock
ii. Compute the weighed average cost of capital (WACC).
7. Assume Bekele is the financial analyst of Addiss Electronics Company. The manager of the company request
him to analyze two proposed capital investments (projects A and B). Each project has a cost of Br 220,000
and the cost of capital for each project is 10 percent. The projects’ expected net cash flows are as follows
Year 0 1 2 3 4 5
Project-A Cash (220,000) 50,000 50,000 45,000 65,000 30,000
Project-B flows (220,000) 60,000 50,000 60,000 40,000 35,000

Require:
i. compute Payback Periods and IRR for both projects
ii. Which project or projects should be accepted if they are independent?
iii. Which project should be accepted if they are mutually exclusive?

8. Desse Company is considering a capital investment in the new equipment. The estimated cash flows are as
follows.
Year 0 1 2 3 4 5
(360,000) 120,000 180,000 100,000 60,000 40,000
Required: Assuming the company’s cost of capital is 9%, calculate the NPV and Internal Rate of Return (IRR)
of the project to assess whether it should be undertaken.
9. Assume that Sodo-Company issued a bond with a face value of birr 1,000, coupon rate of 8% and a 10 years
maturity period.
Required: Calculate the value of the bond by assuming the required interest rate (effective market rate) is
i. 8%
ii. 10%
iii. 6%
10. Assume that Addiss-Company has a bond with birr 2000 par value, 10% coupon interest rate and 5 years
maturity period. The interest on the bonds is paid semiannually.
Required:
i. Compute the value of Addiss’s bond assuming the required rate of return (Kd) is 12%.
ii. Compute the value of Addiss’s bond if the required rate of return (Kd) is increased to 12%.
11. Assume that XYZ- Company is planning to issue zero coupon bonds that will mature at $1,000 in 10 years. If
your required rate of return on these bonds is 6.15 %, what are you willing to pay for the bonds? If these bonds
are currently selling for $ 323, what is their yield to maturity (YTM)?

N.B: it a must to attaché this paper with your answers during submission!

Damat Hotel and Business College of Distance Education

| Mobile: 0905515253/0905525354
E-mail: damattcollege@gmail.com P.O.Box: 29379 Addis Ababa, Ethiopia Telegram: Page 2
https://t.me/DamatHotelandBusinessCollege https://t.me/DamatHotelandBusinessCollegeሀ
”A Journey towards Excellence”