Finance Question Answer 2022

Running head: FINANCE
Finance
Name of the Student
Name of the University
Author Note

1FINANCE
Table of Contents
Analysis of Business Transactions...............................................................................................2
Ratios to be used to analyse the business.....................................................................................2
References....................................................................................................................................3

2FINANCE
Answer to Question 1
IRR of the project 5%
Time period of the project (in years) 3
Value of Initial Investment ?
Annual cash flows 10000
Details of the project
Year 0 -30000 -31500 -57232
Year 1 10000 10000 10000
Year 2 10000 10000 10000
Year 3 10000 10000 10000
IRR 0% -2% -26%
Answer is D
Answer to Question 2
Particulars Year 0 Year 1 Year 2 Year 3 Year 4
Initial Investment ($102,500
)
Cash Inflows - - $9,800 $48,700 $82,900
Discount Rate 0.9174312 0.84167999 0.77218348 0.7084252
1
Present Value of Inflows - - $8,248.46 $37,605.34 $58,728.45
Cumulative Cash Flow ($102,500
)
($102,500
)
($94,251.54
)
($56,646.20
)
$2,082.25
Discounted Payback
Period
3.9645445
Total Cost of Investment ($102,500)
Year 0 ($102,500)
Year 2 9800
Year 3 48700
Year 4 82900
Required Discounted Payback Period (in 3.5

3FINANCE
years)
Discount Rate 9%
Answer E
Answer to Question 3
D
Answer to Question 4
E
Answer to Question 5
Cost of Machinery at the time of purchase $
229,380.00
Useful Life of the Machinery (in years) 8
Method of Depreciation is the Straight Line
Method
Tax Rate 35%
Discount Rate 16%
Annual depreciation on the machinery $
28,672.50
Accumulated Depreciation $
143,362.50
Book Value of the asset $
86,017.50
After Tax Salvage Value $
78,531.13
After Tax Salvage Value 37389.69073
Answer D
Answer to Question 6
B
Answer to Question 7
IRR 13.09%
Beta 1.21
Market Risk Premium 8.10%

4FINANCE
Tax Rate 35%
Risk Free Rate 2.90%
Firm's Beta 1.42
CAPM 14.40%
Answer D
Answer to Question 8
C
Answer to Question 9
WACC 11.50%
Target equity
percentage
0.55
Target debt percentage 0.55
Before tax cost of debt 0.09
Tax rate of the
company
0.3
Expected dividend
(D1)
$ 5.00
Current Stock Price
(Po)
$ 45.00
11.50% 0.45*(0.09)*(0.70)+0.55rs
0.55Rs 0.08665
Rs 15.75%
15.75% (D1/Po)+g
D1/Po 11%
g 4.64%

5FINANCE
Answer to Question 11
Particulars Year 0 Year 1 Year 2
Initial Outflow $
(1.60)
$
10.00
$
(10.00)
Discounted Cash Flows $
(1.60)
$
5.71
$
(3.27)
NPV of the project $
0.85
Accept either of the projects
Answer to Question 13
Wooden
Bridge
Year
0
1 2 3 4 5 6 7 8 9 10
Initial
Investme
nt
$
(125,
000.0
0)
Annual
Expenditu
re
$
(15,0
00.0
0)
$
(15,0
00.0
0)
$
(15,0
00.0
0)
$
(15,0
00.0
0)
$
(15,0
00.0
0)
$
(15,0
00.0
0)
$
(15,0
00.0
0)
$
(15,0
00.0
0)
$
(15,0
00.0
0)
$
(15,0
00.0
0)
Discount
Factor
@15%
0.87 0.76 0.66 0.57 0.50 0.43 0.38 0.33 0.28 0.25
Present
Value
$
(13,0
$
(11,3
$
(9,86
$
(8,57
$
(7,45
$
(6,48
$
(5,63
$
(4,90
$
(4,26
$
(3,70

6FINANCE
43.4
8)
42.1
6)
2.74) 6.30) 7.65) 4.91) 9.06) 3.53) 3.94) 7.77)
Discounte
d Cash
Outflow
$
(125,
000.0
0)
$
(13,0
43.4
8)
$
(11,3
42.1
6)
$
(9,86
2.74)
$
(8,57
6.30)
$
(7,45
7.65)
$
(6,48
4.91)
$
(5,63
9.06)
$
(4,90
3.53)
$
(4,26
3.94)
$
(3,70
7.77)
NPV $ (200,281.53)
Steel
Bridge
Year
0
1 2 3 4 5 6 7 8 9 10
Initial
Investme
nt
$
(200,
000.0
0)
Annual
Expendit
ure
$
(5,00
0)
$
(5,00
0)
$
(5,00
0)
$
(5,00
0)
$
(5,00
0)
$
(5,00
0)
$
(5,00
0)
$
(5,00
0)
$
(5,00
0)
$
(5,00
0)
Discounting
Factor @ 15%
0.87
0
0.75
6
0.65
8
0.57
2
0.49
7
0.43
2
0.37
6
0.32
7
0.28
4
0.24
7
Discounte
d Cash
Flow
$
(4,34
7.83)
$
(3,78
0.72)
$
(3,28
7.58)
$
(2,85
8.77)
$
(2,48
5.88)
$
(2,16
1.64)
$
(1,87
9.69)
$
(1,63
4.51)
$
(1,42
1.31)
$
(1,23
5.92)
$
(33,2
08.89
)
Steel Bridge is better because of the lower cost of investment in the current scenario.

7FINANCE
Answer to Question 14
Year 0 1 2 3
Sales 0 $
200,000.00
$
200,000.0
0
$
200,000.0
0
Less: Cost of Goods Sold $
100,000.00
$
100,000.0
0
$
100,000.0
0
Gross Profit $
100,000.00
$
100,000.0
0
$
100,000.0
0
Less: Cost of hiring an assistant $
40,000.00
$
40,000.00
$
40,000.00
Less: Depreciation on current and new
equipment
$
20,333.33
$
20,333.33
$
20,333.33
EBIT $
39,666.67
$
39,666.67
$
39,666.67
Less: Tax @35% $
13,883.33
$
13,883.33
$
13,883.33
Incremental Earnings $
25,783.33
$
25,783.33
$
25,783.33
Add : Depreciation $
20,333.33
$
20,333.33
$
20,333.33
Add: Increase in working capital $
10,000.00
$
(5,000.00)
$
(5,000.00)
Incremental Cash Flow $
30,333.33
$
15,333.33
$
15,333.33
Discounting factor @ 15% 0.86956521
7
0.7561436
67
0.6575162
32
PV of cash flows $ $ $

8FINANCE
26,376.81 11,594.20 10,081.92
NPV of the project $
48,052.9
3
As NPV is positive, the project is profitable and should be accepted.
Answer to Question 15
Answer to Question 15
Year 0 1 2 3
Cash Flow 25000 40000 35000
Tax Rate @40% 10000 16000 14000
Net Cash flows 15000 24000 21000
Discount Rate @ 5.829% 0.94 0.89 0.84
Discounted Cash Flows 14173.8 21429.0 17717.6
Maximum Amount to Breakeven 53320.4
Cost of Capital
Debt
Yield 5.47%
Coupon 6%
Coupon Amt 6
Face Value 100
Current Price 106.4
Time 20

9FINANCE
Bond
Outstanding
9000
Price 106.4
Market Value 957600
New Cost of Capital
Debt 3% 2.69%
Preference Share 4% 35.44%
Equity Shares 7% 61.87%
Total 100.00%
WACC: 5.829%
Particulars Weight Cost
Debt 2.69% 5.47%
Preference
Share
35.44% 6.00%
Equity Shares 61.87% 12.12%
Total 100.00%
WACC: 9.770%
Total Capital 35557600
Preffred Stock Equity Stock
Current Price
(Po)
84 D0 2.63
Par Value 100 Growth Rate 7%
Cost of Pref.
Share
6% D1 2.81

10FINANCE
Po 55
Cost of Equity: (D1/Po)+Growth rate
Cost of Equity 12.12%
Shares
Outstanding
150,000 Shares
Outstanding
400,000
Price 84 Price 55
Market Value 12600000 Market Value 22000000