Fin 440

Mid 1
Name: Mohammad Tanvir ahammad
ID: 1512285030
Instruction
First of all, kindly turn on your video and follow all the exam guideline that I have
posted in our Google classroom. For each of the questions, you have to insert at least
one picture in the designed area (indicated with the green front). If required, feel free to
paste multiple images in the designed area and increase the designed area to match
your answer. For instances, for maths, you may need to insert multiple pictures.
Students are not allowed to type their answer in the word file. Use your calculator for
math and round up to two decimal point. Do not use excel for your calculation. Submit
this word document in your Mid 1 submission link (In our classroom). Do not convert
this word file into pdf or other formats. If you have any confusion and queries, message
me in Google classroom. Do not disturb others by asking questions through your
microphone, as it will disturb other students. Soon I will update everyone regarding
interview timing.

1. Suppose you are working as Finance Manager for PHP Group. Already the group has taken
significant debt and PHP group is evaluating the investment proposal for a new motorcycle
factory. PHP will need to invest a total of $1,250,000 in manufacturing equipment. PHP will
have to invest $1,500,000 in net working capital at the start (at year 0). PHP will recover
1500,000 as the net working capital after closing this factory. After four years, the
manufacturing equipment will be worth about half of what PHP paid for it. In four years, the
book value of this investment will be 390,500. PHP thinks that they can sell 6,000 units per year
at a price of $1,000 each. Variable costs will be $400 per unit, and the project should have a four-
year life. The tax rate is 34%. Fixed costs for the project will be $450,000 per year. The annual
depreciation expense is provided below:

Year 1 Year 2 Year 3 Year 4

178,625 306,125 218,625 156,125

Should PHP invest in this project if the discount rate is 28%. Show detailed calculation. Take
clear picture/pictures of your calculation and paste below.
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2. a) Square currently has five debt issues outstanding and exploring another loan deal from
Jamuna Bank. The value of first debt is $ 20,000 and cost of debt is 7%, the value of second
debt is $ 2300 and cost of debt is 7.5%, the value of third debt is 2200 and cost of debt is 8%.
The value of fourth debt is 4000 and cost of debt is 7% and value of fifth debt is $6000 and
cost of debt is 13%. Suppose Square also wants to borrow additional $10,000 from Jamuna
bank and you are supervising that deal. Square needs to repay the loan by making equal
annual total payments for five years. The interest rate on the loan will be six percent higher
than the third loan deal. Prepare an amortization schedule for this Jamuna Bank loan. How
much interest will square pay over the life of the loan? Show detailed calculation. Take clear
picture/pictures of your calculation and paste below.
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b) Discuss the real life challenges associated with calculating the annual cash flows. Provide
examples. 2
3. a) ACI Group is evaluating the proposal of expanding its RMG factory called ACI Fabrics.
ACI Group is currently renting a premise of 40,000 Square feet in Savar and already ACI
Fabrics is using 5,000 Square feet from this 40,000 square feet premise. ACI Group has
forecasted a strong sales growth in RMG business and therefore, wants to evaluate this
expansion plan. Under this new project plan, ACI fabrics will open another unit and for that
ACI group will rent additional 10,000 Square feet in the same building. So, the total rented
premise will be 50,000 Square feet. The required rate of return for ACI is 10 per cent. All the
cloths will be sold at 2 per cloth. The annual sales commission for this new unit will be 120.
The proposed project has following cash flows:

Year Cash flow

0 -300

1 50

2 60

3 70

4 200

Should they open this new unit or continue with the old production process. Show
detailed NPV calculation. Take clear picture/pictures of your calculation and paste below.
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b) Company X paid USD 24.2 as dividend in last year (2019). Company X’s historical stock
dividend is provided below and the company will maintain the same growth in future. In
2020, if the stock’s current market value is 292.8, find the cost of equity. Show detailed
calculation. 3
Year Dividend Per Share
2019 24.2
2018 22
2017 20
4) (a) Discuss the disadvantages of Dividend Growth Model Approach.
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b) Suppose Summit is considering automating of an existing production process. The
automation will increase gross profit by $220 per year. For this automation, Summit needs to
purchase the machine either from China or Korea. The Korean machine must be replaced
after three years. With their extensive debt problem, Summit wants to carefully asses the
machine purchase option. If they purchase from China, the initial cost will be 200 and $10
per year will be required to operate. Already the company has extensive business risk.
Managing such extensive level of risk can be extremely difficult for the company and
therefore, the company is very careful regarding their equipment purchase. The Chinese
machine must be replaced after two years. If the machine is purchased from Korea, the initial
cost will be 240 and $8 per year will be required to operate. Ignoring taxes, which particular
machine Summit should choose if they use a 10 percent discount rate. Show detailed
calculation. 2
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4) (C) Company X has a net income of 66,000, total asset of 500,000 and total equity of 250,000.
If the profit margin is 20% and plowback ratio is 2/3, what will be the internal growth rate and
sustainable growth rate for company X? 2

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5) (a) Suppose you are working as risk management specialist for Bata Shoe. Currently, the
firm’s assets have a market value of $8 million, and there are 400,000 shares outstanding.
Currently Bata is planning to obtain additional $2 million for a project. Mention at least
four plug variables that Bata can choose to obtain this additional $2 million (You just
need to mention four plug variables). Take clear picture/pictures of your answer and paste
below. 1
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 b) Suppose ACI is considering automating of an existing production process and
purchasing a new machine which does not require any labor cost. The necessary
equipment costs $100,000. ACI has a discount rate is 10 percent and plans to install the
new machine in their existing factor. The new equipment has a five-year life and is
depreciated to 20,000 on a straight-line basis over that period. The tax rate is 25 percent
and the automation process will increase gross profit by $20,000 per year. The machine
will actually be worth $40,000 in five years. Should ACI automate?
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Formula