Homework Corporate Finance

7/17/2019 Homework Corporate Finance

http://slidepdf.com/reader/full/homework-corporate-finance 1/5

Juan David Barbosa

Infrastructure Finance [email protected]

August 6/201

Chapter 2 - Spreadsheet Questions

2.1 In 1!!0 "ve aborigina# trac$ers %ere eac& 'romised t&e e(uiva#ent of 100Austra#ian do##ars for &e#'ing to ca'ture t&e notorious out#a% )ed *e##+. ,ne&undred and t&irteen +ears #ater t&e granddaug&ters of t%o of t&e trac$ers c#aimedt&at t&is re%ard &ad not been 'aid. If t&e interest rate over t&is 'eriod averagedabout -. &o% muc& %ou#d t&e A100 &ave accumu#ated to 3rinci'#es of 4or'orate Finance 10t&5

FV = PV ∙ (1+r )n

F 7 1--8.08

2.2 35 9our com'an+ can #ease a truc$ for 10000 a +ear 'aid at t&e end of t&e+ear5 for si: +ears or it can bu+ t&e truc$ toda+ for 0000. At t&e end of t&e si:+ears t&e truc$ %i## be %ort&; #ess. If t&e interest rate is 6 %&at is t&e 'resentva#ue of t&e #ease 'a+ments Is t&e #ease %ort&%&i#e 3rinci'#es of 4or'orate

Finance 10t&5

PV =C ∙( 1r− 1

r (1+r )n )

<&e #ease is better t&an bu+ing t&e truc$ toda+ because it=s 3> is be#o% t&antoda+=s 'rice 3<5.



2.3 ?A<5 Ford otor stoc$ %as one of t&e victims of t&e 200! credit crisis. In June200 Ford stoc$ 'rice stood at 8.-2. ig&teen mont&s #ater it %as 2.2. C&at %ast&e annua# rate of return over t&is 'eriod to an investor in Ford stoc$ 3rinci'#es of 4or'orate Finance 10t&5

FV = PV ∙ (1+r )n

r=n√ FV PV

−1

r7;1.1

It is a negative rate because t&e investor actua##+ #ost mone+ bet%een 200 and200!.

2.4 )3?5 An investment adviser &as 'romised to doub#e +our mone+. If t&einterest rate is a +ear &o% man+ +ears %i## s&e ta$e to do so 3rinci'#es of 4or'orate Finance 10t&5

FV = PV ∙ (1+r )n

2∙ PV = PV ∙ (1+r )n

ln (2 )=n ∙ ln (1+r )

n=ln (2 )

ln (1+r )



n711 +ears

<&e time for doub#ing t&e mone+ is inde'endent of t&e amount of mone+ and it %i##be rounded to t&e ne:t +ear.

2.5 3<5 9ou need to ta$e out a &ome mortgage for 200000. If 'a+ments are

made annua##+ over 0 +ears and t&e interest rate is ! %&at is t&e amount of t&eannua# 'a+ment 3rinci'#es of 4or'orate Finance 10t&5

PV =C ∙( 1r− 1

r (1+r )n ) PV

( 1r− 1

r (1+r )n )=C

4716.-8

2.6 E)35 9our oce bui#ding re(uires an initia# cas& out#a+ of 0000. Gu''oset&at +ou '#an to rent it out for t&ree +ears at 20000 a +ear and t&en se## it for-00000. If t&e cost of ca'ita# is 12 %&at is its net 'resent va#ue 3rinci'#es of 4or'orate Finance 10t&5

PV 1=C 1 ∙(1r− 1

r (1+r )n )



PV 2=

FV

(1+r )n

NPV =C 0+ P V

1+ PV

2

NPV =−$37,251.28

2.7 FF4<5 First )ationa# Ban$ 'a+s 6.2 interest com'ounded annua##+. Gecond)ationa# Ban$ 'a+s 6 interest com'ounded mont&#+. C&ic& ban$ oHers t&e &ig&ereHective annua# interest rate 3rinci'#es of 4or'orate Finance 10t&5

re=

(1+

(rn

m

))

m

−1

Bot& ban$s 'a+ a#most t&e same annua# eHective rate but after t&e second decima#%e see t&e "rst )ationa# Ban$ oHers a better rate.

2.8 ),I)A>5 C&at mont&#+ com'ounded interest rate %ou#d Gecond )ationa#Ban$ need to 'a+ on savings de'osits to 'rovide an eHective rate of 6.23rinci'#es of 4or'orate Finance 10t&5



re=(1+( rnm ))

m

−1

rn=m∙(m√ re+1−1)

<&e nomina# annua# rate to be oHered is rn76.0

References:

• Principles of Corporate Finance, 10th. cra%;i## 4reate. ita#Boo$ "#e.

Documents

Homework Corporate Finance