This article provides answers to 10 questions related to Business Finance. It covers topics such as loan calculations, effective interest rates, market capitalization, financial decisions, net income vs net cash flow, bond valuation and more. The article also includes a bibliography for further reading.
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Running head: BUSINESS FINANCE Business Finance Name of the Student: Name of the University: Author’s Note:
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1BUSINESS FINANCE Table of Contents Answer to Question 1:.....................................................................................................................2 Answer to Question 2:.....................................................................................................................2 Answer to Question 3:.....................................................................................................................2 Answer to Question 4:.....................................................................................................................3 Answer to Question 5:.....................................................................................................................3 Answer to Question 6:.....................................................................................................................4 Answer to Question 7:.....................................................................................................................4 Answer to Question 8:.....................................................................................................................4 Answer to Question 9:.....................................................................................................................5 Answer to Question 10:...................................................................................................................5 Bibliography:...................................................................................................................................6
2BUSINESS FINANCE Answer to Question 1: If Nathan wishes to borrow $500,000, then he would have to pay $2,315.58 to bank as monthly instalments. The calculations are shown below: ParticularsAmount Maximum Loan ValuePV$5,00,000.00 Interest Rate p.a.r3.75% Loan Term ( in years)n30 Nos. of Payments p.a.m12 Monthly Installment Amount A=[(r/m)xPV]/[1- (1+r/m)^(-nxm)]$2,315.58 Answer to Question 2: If Nathan would pay $1700 as monthly instalments for next 30 years, then the future value of the monthly instalments would be $11,28,701.21, which is calculated below: ParticularsAmount Monthly PaymentsA$1,700.00 Interest Rate p.a.r3.75% Loan Term ( in years)n30 Nos. of Payments p.a.m12 Future Value of all Installment FV=Ax[{(1+r/m)^( mxn) - 1}/(r/m)]$11,28,701.21 Answer to Question 3: In accordance to the given scenario and the following table, Jenny could borrow $3,45,486.10:
3BUSINESS FINANCE ParticularsAmount Monthly PaymentsA$1,600.00 Interest Rate p.a.r3.75% Loan Term ( in years)n30 Nos. of Payments p.a.m12 Loan Amount PV=Ax[{1- (1+r/m)^(- mxn)}/(r/m)]$3,45,486.10 Answer to Question 4: Effective annual rate helps to compare the return rates with different compounding periods. The effective interest rates of the two alternatives are calculated below: ParticularsAlternative 1Alternative 2 Interest Rate p.a.r10.38%10.00% Compounding [periodsm14 Effective Interest Rate EAR=[(1+r/m)^m]- 110.38%10.38% Though the annual return rate of alternative 1 is higher than the return rate of alternative 2, as per the table, the effective interest rates of both the alternatives are same. Hence, Josh can select any of the alternatives. Answer to Question 5: The market capitalization of BY Limited on 30 June 2016 is computed in the following table:
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4BUSINESS FINANCE ParticularsAmount Nos. of Shares Outstanding (in million)n1,500 Market Price per sharesp$82.00 Market Capitalization (in million)CAP= nxp$1,23,000 Answer to Question 6: As per the following table, Raul needs to invest $6,00,000 into the annuity investment: ParticularsAmount Monthly PaymentsA$3,000.00 Interest Rate p.a.r6.00% Nos. of Payments p.a.m12 Investment AmountPV=A/(r/m)$6,00,000.00 Answer to Question 7: The three key financial decisions, which are faced by the managers, are as follows: -Investment Decision -Financing Decision -Dividend Decision Answer to Question 8: Net income is derived by deducting the cost of goods sold, operating expenses, finance costs and income tax expenses of a particular period from the total revenue, recognized in that specific period. It includes all the non-cash expenses and credit transactions.
5BUSINESS FINANCE Whereas, net cash flow is the excess cash revenue over all the operating cash expenses for a particular period. It does not include the credit transactions or non-cash expenses. Answer to Question 9: ParticularsAmount Face ValueF$1,000.00 Coupon Raterc10.00% Period (in years)n10 Nos. of Payments p.a.m2 Coupon PaymentC=(Fxrc)/m$50.00 Total nos. of Coupon Paymentst=nxm20 Answer to Question 10: Desi would be willing to pay $885.30 for the bond. The details are as follows: ParticularsAmount Face ValueF$1,000.00 Coupon PaymentC$50.00 Nos. of Payments p.a.m2 Total Nos. of Coupon Paymentst20 Required Rate of Returnr12% Bond Price P=[Cx{1-(1+r/m)^- t}/(r/m)]+[Fx{(1+r /m)^-t}]$885.30
6BUSINESS FINANCE Bibliography: Damodaran, A., 2016.Damodaran on valuation: security analysis for investment and corporate finance(Vol. 324). John Wiley & Sons Titman,S.,Keown,A.J.andMartin,J.D.,2017.Financialmanagement:Principlesand applications. Pearson.