Corporate Finance - Present Value of Annuity, Bond Issues, WACC, NPV, IRR, Stock Valuation, Technical and Fundamental Analysis

CORPORATE FINANCE
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Question 1
PART A
The formula for present value of annuity is indicated as follows (Damodaran, 2015).
Based on the given information, P = $3,600, r= 12% p.a but owing to monthly compounding
1% per month, n = 24 months
Hence, PV of annuity = 3600*(1-1.01-24)/0.01 = $ 76,476.19
PART B
The relevant details about the bonds issues are highlighted below.
Face value = $ 10,000
Time to maturity = 12 years
Interest rate = 10% p.a.
a) If simple interest is charged, then the interest paid would be same every year
Hence, interest paid over 12 years = P*R*T = 10000*10%*12 = $ 12,000
b) If compound interest is charted, then the interest paid would keep increasing every year.
Thus, the future value of a annuity paying $ 1,000 every year for 12 years needs to be
computed. The relevant formula is indicated.

For the given situation, P = $1,000, n =12, r=10%
Hence, total interest paid over 12 years = 1000*(1.112-1)/0.1 = $21,834.28
PART C
Market value of equity = $46.6 mn
Market value of long term debt = $35 mn
Market value of preference shares = $ 10.3 mn
Total capital used = 46.6 + 35 + 10.3 = $ 91.9 million
Weight of equity = (46.6/91.9) = 0.507
Weight of long term debt = (35/91.9) = 0.381
Weight of preference shares = (10.3/91.9) = 0.112
Cost of equity = 12% p.a.
After tax cost of debt = 8%*(1-0.3) = 5.6% p.a/
Cost of preference shares = 10%
WACC = 0.507*12% + 0.381*5.6% + 0.112*10% = 9.34%
Question 2
a) In order to ascertain, if Project A is feasible or not, NPV needs to be computed. The
discount rate would be taken as 20%.