FIN 200 Business Finance: Loan Amortization, NPV & IRR Analysis

This project report for a Business Finance course (FIN 200) includes a detailed analysis of loan amortization, refinancing options, bond valuation, and capital budgeting. It calculates monthly loan payments, interest and principal components, and outstanding loan balances. The project evaluates the f...Read More

Running Head: Business Finance
1
Project report: Business Finance

Business Finance
2
Part A:
Office Building $
25,00,00,000
Million
Loan to value
ratio
80%
Loan amount $
20,00,00,000
Year 10 years
Interest rate 8%
Payment Monthly
Payment
1.1)
Calculation of monthly payment
Loan $
2,00,00,000
Tenure (months) 120
Interest rate
monthly
0.67%
EMI $2,42,655
EMI of the company is $ 2,42,655.
1.2)
Calculation of monthly interest
Loan amount $2,00,00,000
EMI $2,42,655
Interest amount
(Balance loan
amount * interest
rate)
$1,33,333
(Tucker, 2011)
Interest payment of the company for first month would be $ 1,33,333.
1.3)

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Calculation of monthly interest
Loan amount $2,00,00,000
EMI $2,42,655
Interest amount
(Balance loan
amount * interest
rate)
$1,33,333
Principle amount
(EMI - Interest
amount)
$1,09,322
Principle payment would be $ 1,09,322 of the company (Brigham & Ehrhardt, 2013).
1.4)
Que 1d)
Calculation of loan amount after 3
year
Loan $2,00,00,000
Less: total
Principle amount
in 3 years
44,31,422
Balance Amount
1,55,68,577.62
Loan Schedule
EMI No. Opening balance
loan
EMI Interest Closing balance
loan
1 2,00,00,000 2,42,655.19 1,33,333 1,98,90,678
2 1,98,90,678 2,42,655.19 1,32,604.52 1,97,80,627
3 1,97,80,627 2,42,655.19 1,31,870.85 1,96,69,843
4 1,96,69,843 2,42,655.19 1,31,132.29 1,95,58,320
5 1,95,58,320 2,42,655.19 1,30,388.80 1,94,46,054
6 1,94,46,054 2,42,655.19 1,29,640.36 1,93,33,039
7 1,93,33,039 2,42,655.19 1,28,886.93 1,92,19,271
8 1,92,19,271 2,42,655.19 1,28,128.47 1,91,04,744
9 1,91,04,744 2,42,655.19 1,27,364.96 1,89,89,454

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10 1,89,89,454 2,42,655.19 1,26,596.36 1,88,73,395
11 1,88,73,395 2,42,655.19 1,25,822.63 1,87,56,562
12 1,87,56,562 2,42,655.19 1,25,043.75 1,86,38,951
13 1,86,38,951 2,42,655.19 1,24,259.67 1,85,20,555
14 1,85,20,555 2,42,655.19 1,23,470.37 1,84,01,371
15 1,84,01,371 2,42,655.19 1,22,675.80 1,82,81,391
16 1,82,81,391 2,42,655.19 1,21,875.94 1,81,60,612
17 1,81,60,612 2,42,655.19 1,21,070.75 1,80,39,028
18 1,80,39,028 2,42,655.19 1,20,260.18 1,79,16,633
19 1,79,16,633 2,42,655.19 1,19,444.22 1,77,93,422
20 1,77,93,422 2,42,655.19 1,18,622.81 1,76,69,389
21 1,76,69,389 2,42,655.19 1,17,795.93 1,75,44,530
22 1,75,44,530 2,42,655.19 1,16,963.53 1,74,18,838
23 1,74,18,838 2,42,655.19 1,16,125.59 1,72,92,309
24 1,72,92,309 2,42,655.19 1,15,282.06 1,71,64,936
25 1,71,64,936 2,42,655.19 1,14,432.90 1,70,36,713
26 1,70,36,713 2,42,655.19 1,13,578.09 1,69,07,636
27 1,69,07,636 2,42,655.19 1,12,717.57 1,67,77,699
28 1,67,77,699 2,42,655.19 1,11,851.32 1,66,46,895
29 1,66,46,895 2,42,655.19 1,10,979.30 1,65,15,219
30 1,65,15,219 2,42,655.19 1,10,101.46 1,63,82,665
31 1,63,82,665 2,42,655.19 1,09,217.77 1,62,49,228
32 1,62,49,228 2,42,655.19 1,08,328.18 1,61,14,901
33 1,61,14,901 2,42,655.19 1,07,432.67 1,59,79,678
34 1,59,79,678 2,42,655.19 1,06,531.19 1,58,43,554
35 1,58,43,554 2,42,655.19 1,05,623.69 1,57,06,523
36 1,57,06,523 2,42,655.19 1,04,710.15 1,55,68,578
Total principle amount 44,31,422.38
1.5)
In case of 8%
Total EMI amount
2,03,83,035.85
Total interest
amount 48,14,458
48,14,458
In case of 7%

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Total EMI
amount 1,97,37,611
Total interest
amount 41,69,033
Refinanced cost
2,50,000
44,19,033
Que 1.5
Calculation of monthly payment
Loan $
1,55,68,578
Tenure (months) 84
Interest rate
monthly
0.58%
EMI $2,34,972
Loan Schedule
EMI No. Opening balance
loan
EMI Interest Closing balance
loan
37 1,55,68,578 2,42,655.19 1,03,791 1,54,29,713
38 1,54,29,713 2,42,655.19 1,02,865 1,52,89,923
39 1,52,89,923 2,42,655.19 1,01,933 1,51,49,200
40 1,51,49,200 2,42,655.19 1,00,995 1,50,07,540
41 1,50,07,540 2,42,655.19 1,00,050 1,48,64,935
42 1,48,64,935 2,42,655.19 99,100 1,47,21,379
43 1,47,21,379 2,42,655.19 98,143 1,45,76,866
44 1,45,76,866 2,42,655.19 97,179 1,44,31,390
45 1,44,31,390 2,42,655.19 96,209 1,42,84,944
46 1,42,84,944 2,42,655.19 95,233 1,41,37,522
47 1,41,37,522 2,42,655.19 94,250 1,39,89,117
48 1,39,89,117 2,42,655.19 93,261 1,38,39,723
49 1,38,39,723 2,42,655.19 92,265 1,36,89,332
50 1,36,89,332 2,42,655.19 91,262 1,35,37,939
51 1,35,37,939 2,42,655.19 90,253 1,33,85,537
52 1,33,85,537 2,42,655.19 89,237 1,32,32,119
53 1,32,32,119 2,42,655.19 88,214 1,30,77,678
54 1,30,77,678 2,42,655.19 87,185 1,29,22,207
55 1,29,22,207 2,42,655.19 86,148 1,27,65,700

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56 1,27,65,700 2,42,655.19 85,105 1,26,08,149
57 1,26,08,149 2,42,655.19 84,054 1,24,49,549
58 1,24,49,549 2,42,655.19 82,997 1,22,89,890
59 1,22,89,890 2,42,655.19 81,933 1,21,29,168
60 1,21,29,168 2,42,655.19 80,861 1,19,67,374
61 1,19,67,374 2,42,655.19 79,782 1,18,04,501
62 1,18,04,501 2,42,655.19 78,697 1,16,40,543
63 1,16,40,543 2,42,655.19 77,604 1,14,75,491
64 1,14,75,491 2,42,655.19 76,503 1,13,09,339
65 1,13,09,339 2,42,655.19 75,396 1,11,42,079
66 1,11,42,079 2,42,655.19 74,281 1,09,73,705
67 1,09,73,705 2,42,655.19 73,158 1,08,04,208
68 1,08,04,208 2,42,655.19 72,028 1,06,33,580
69 1,06,33,580 2,42,655.19 70,891 1,04,61,816
70 1,04,61,816 2,42,655.19 69,745 1,02,88,906
71 1,02,88,906 2,42,655.19 68,593 1,01,14,844
72 1,01,14,844 2,42,655.19 67,432 99,39,621
73 99,39,621 2,42,655.19 66,264 97,63,230
74 97,63,230 2,42,655.19 65,088 95,85,663
75 95,85,663 2,42,655.19 63,904 94,06,912
76 94,06,912 2,42,655.19 62,713 92,26,969
77 92,26,969 2,42,655.19 61,513 90,45,827
78 90,45,827 2,42,655.19 60,306 88,63,478
79 88,63,478 2,42,655.19 59,090 86,79,912
80 86,79,912 2,42,655.19 57,866 84,95,123
81 84,95,123 2,42,655.19 56,634 83,09,102
82 83,09,102 2,42,655.19 55,394 81,21,841
83 81,21,841 2,42,655.19 54,146 79,33,332
84 79,33,332 2,42,655.19 52,889 77,43,565
85 77,43,565 2,42,655.19 51,624 75,52,534
86 75,52,534 2,42,655.19 50,350 73,60,229
87 73,60,229 2,42,655.19 49,068 71,66,642
88 71,66,642 2,42,655.19 47,778 69,71,764
89 69,71,764 2,42,655.19 46,478 67,75,587
90 67,75,587 2,42,655.19 45,171 65,78,103
91 65,78,103 2,42,655.19 43,854 63,79,302
92 63,79,302 2,42,655.19 42,529 61,79,175
93 61,79,175 2,42,655.19 41,195 59,77,714
94 59,77,714 2,42,655.19 39,851 57,74,911
95 57,74,911 2,42,655.19 38,499 55,70,755
96 55,70,755 2,42,655.19 37,138 53,65,238
97 53,65,238 2,42,655.19 35,768 51,58,351
98 51,58,351 2,42,655.19 34,389 49,50,085

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99 49,50,085 2,42,655.19 33,001 47,40,430
100 47,40,430 2,42,655.19 31,603 45,29,378
101 45,29,378 2,42,655.19 30,196 43,16,919
102 43,16,919 2,42,655.19 28,779 41,03,043
103 41,03,043 2,42,655.19 27,354 38,87,741
104 38,87,741 2,42,655.19 25,918 36,71,005
105 36,71,005 2,42,655.19 24,473 34,52,823
106 34,52,823 2,42,655.19 23,019 32,33,186
107 32,33,186 2,42,655.19 21,555 30,12,086
108 30,12,086 2,42,655.19 20,081 27,89,511
109 27,89,511 2,42,655.19 18,597 25,65,453
110 25,65,453 2,42,655.19 17,103 23,39,900
111 23,39,900 2,42,655.19 15,599 21,12,845
112 21,12,845 2,42,655.19 14,086 18,84,275
113 18,84,275 2,42,655.19 12,562 16,54,182
114 16,54,182 2,42,655.19 11,028 14,22,554
115 14,22,554 2,42,655.19 9,484 11,89,383
116 11,89,383 2,42,655.19 7,929 9,54,657
117 9,54,657 2,42,655.19 6,364 7,18,366
118 7,18,366 2,42,655.19 4,789 4,80,500
119 4,80,500 2,42,655.19 3,203 2,41,048
120 2,41,048 2,42,655.19 1,607 (0)
Loan Schedule
EMI
No.
Opening
balance loan
EMI Interest Closing
balance
loan
37 1,55,68,578 2,34,972 90,817 1,54,24,423
38 1,54,24,423 2,34,972 89,976 1,52,79,427
39 1,52,79,427 2,34,972 89,130 1,51,33,585
40 1,51,33,585 2,34,972 88,279 1,49,86,893
41 1,49,86,893 2,34,972 87,424 1,48,39,345
42 1,48,39,345 2,34,972 86,563 1,46,90,936
43 1,46,90,936 2,34,972 85,697 1,45,41,662
44 1,45,41,662 2,34,972 84,826 1,43,91,517
45 1,43,91,517 2,34,972 83,951 1,42,40,496
46 1,42,40,496 2,34,972 83,070 1,40,88,594
47 1,40,88,594 2,34,972 82,183 1,39,35,806
48 1,39,35,806 2,34,972 81,292 1,37,82,126
49 1,37,82,126 2,34,972 80,396 1,36,27,550
50 1,36,27,550 2,34,972 79,494 1,34,72,073
51 1,34,72,073 2,34,972 78,587 1,33,15,688

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52 1,33,15,688 2,34,972 77,675 1,31,58,392
53 1,31,58,392 2,34,972 76,757 1,30,00,177
54 1,30,00,177 2,34,972 75,834 1,28,41,040
55 1,28,41,040 2,34,972 74,906 1,26,80,975
56 1,26,80,975 2,34,972 73,972 1,25,19,976
57 1,25,19,976 2,34,972 73,033 1,23,58,037
58 1,23,58,037 2,34,972 72,089 1,21,95,154
59 1,21,95,154 2,34,972 71,138 1,20,31,321
60 1,20,31,321 2,34,972 70,183 1,18,66,532
61 1,18,66,532 2,34,972 69,221 1,17,00,782
62 1,17,00,782 2,34,972 68,255 1,15,34,065
63 1,15,34,065 2,34,972 67,282 1,13,66,376
64 1,13,66,376 2,34,972 66,304 1,11,97,708
65 1,11,97,708 2,34,972 65,320 1,10,28,056
66 1,10,28,056 2,34,972 64,330 1,08,57,415
67 1,08,57,415 2,34,972 63,335 1,06,85,778
68 1,06,85,778 2,34,972 62,334 1,05,13,141
69 1,05,13,141 2,34,972 61,327 1,03,39,496
70 1,03,39,496 2,34,972 60,314 1,01,64,838
71 1,01,64,838 2,34,972 59,295 99,89,161
72 99,89,161 2,34,972 58,270 98,12,460
73 98,12,460 2,34,972 57,239 96,34,727
74 96,34,727 2,34,972 56,203 94,55,958
75 94,55,958 2,34,972 55,160 92,76,147
76 92,76,147 2,34,972 54,111 90,95,286
77 90,95,286 2,34,972 53,056 89,13,370
78 89,13,370 2,34,972 51,995 87,30,393
79 87,30,393 2,34,972 50,927 85,46,349
80 85,46,349 2,34,972 49,854 83,61,231
81 83,61,231 2,34,972 48,774 81,75,034
82 81,75,034 2,34,972 47,688 79,87,750
83 79,87,750 2,34,972 46,595 77,99,373
84 77,99,373 2,34,972 45,496 76,09,898
85 76,09,898 2,34,972 44,391 74,19,318
86 74,19,318 2,34,972 43,279 72,27,625
87 72,27,625 2,34,972 42,161 70,34,815
88 70,34,815 2,34,972 41,036 68,40,880
89 68,40,880 2,34,972 39,905 66,45,813
90 66,45,813 2,34,972 38,767 64,49,609
91 64,49,609 2,34,972 37,623 62,52,260
92 62,52,260 2,34,972 36,472 60,53,760
93 60,53,760 2,34,972 35,314 58,54,102
94 58,54,102 2,34,972 34,149 56,53,280

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95 56,53,280 2,34,972 32,977 54,51,286
96 54,51,286 2,34,972 31,799 52,48,113
97 52,48,113 2,34,972 30,614 50,43,756
98 50,43,756 2,34,972 29,422 48,38,206
99 48,38,206 2,34,972 28,223 46,31,457
100 46,31,457 2,34,972 27,017 44,23,502
101 44,23,502 2,34,972 25,804 42,14,335
102 42,14,335 2,34,972 24,584 40,03,947
103 40,03,947 2,34,972 23,356 37,92,332
104 37,92,332 2,34,972 22,122 35,79,482
105 35,79,482 2,34,972 20,880 33,65,391
106 33,65,391 2,34,972 19,631 31,50,051
107 31,50,051 2,34,972 18,375 29,33,454
108 29,33,454 2,34,972 17,112 27,15,595
109 27,15,595 2,34,972 15,841 24,96,464
110 24,96,464 2,34,972 14,563 22,76,055
111 22,76,055 2,34,972 13,277 20,54,361
112 20,54,361 2,34,972 11,984 18,31,373
113 18,31,373 2,34,972 10,683 16,07,084
114 16,07,084 2,34,972 9,375 13,81,487
115 13,81,487 2,34,972 8,059 11,54,574
116 11,54,574 2,34,972 6,735 9,26,338
117 9,26,338 2,34,972 5,404 6,96,770
118 6,96,770 2,34,972 4,064 4,65,863
119 4,65,863 2,34,972 2,718 2,33,609
120 2,33,609 2,34,972 1,363 0
1.6)
Calculation of quarterly payment
Loan $
2,00,00,000
Tenure (months) 40
Interest rate
monthly
1.75%
EMI $6,99,442
1.7)

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Que 1 g)
Calculation of quarterly payment
Loan $
2,00,00,000
Tenure (months) 40
Interest rate
monthly
1.75%
EMI $6,99,442
Amount after 3
years 1,53,78,596
Loan Schedule
EMI No. Opening balance
loan
EMI Interest Closing balance
loan
1 2,00,00,000 6,99,442 3,50,000 1,96,50,558
2 1,96,50,558 6,99,442 3,43,885 1,92,95,001
3 1,92,95,001 6,99,442 3,37,663 1,89,33,222
4 1,89,33,222 6,99,442 3,31,331 1,85,65,111
5 1,85,65,111 6,99,442 3,24,889 1,81,90,559
6 1,81,90,559 6,99,442 3,18,335 1,78,09,452
7 1,78,09,452 6,99,442 3,11,665 1,74,21,676
8 1,74,21,676 6,99,442 3,04,879 1,70,27,113
9 1,70,27,113 6,99,442 2,97,974 1,66,25,646
10 1,66,25,646 6,99,442 2,90,949 1,62,17,153
11 1,62,17,153 6,99,442 2,83,800 1,58,01,511
12 1,58,01,511 6,99,442 2,76,526 1,53,78,596
1.8)
Calculation of annual % rate
Interest rate 8.00%
1.9)
Calculation of Effective annual rate
Interest rate 8.00%
Compounding
monthly
12

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EAR 8.30%

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Part B:
2.1)
Calculation of required return
Face value $
100
Time 10
Current selling
price
$
78.12
Required rate of
return
3.28%
2.2)
Calculation of bond return
Market price $ 100
time $ 9.00
Rate 3.50%
Loss $ 4.75
2.3)
C = $ 25.00
T = 9
R = 3.50%
F = $ 1,000.00
Bond value = C*[{1-1/(1+r)^t}/r]+[F/
(1+r)^t
Bond Value = $ 923.92
Loss = $ 76.08
Comparison
Part b
Loss Percentage = 6.08%
Part c
Loss percentage = 8.23%
It explains that the first option is far better than first option.

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Part C:
Quarterly dividend $ 3.28
Past quarterly dividend $ 3.12
Growth rate 5%
Market return 11%
Next annual dividend $ 3.70
Calculation of cost of Share price
Dividend expected $ 3.70
Growth rate 5%
Rate of return 11.00%
Share price $ 61.67
Formula = Growth rate = (dividend/ share price)- cost of equity
Calculation of required rate of
return
Dividend expected $ 3.75
Growth rate 5%
Share price $ 61.67
Rate of return 11.08%
(Niu, 2006)
Part D:
A) Systematic risk
B) Unsystematic risk
C) Systematic risk
D) Unsystematic risk
E) Systematic risk

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Part E)
Year Cash Flows
1 $
18,000
2 $
22,500
3 $
27,000
4 $
31,500
5 $
36,000
5.1)
Payback period
Time Cash Flow Cumulative Cash
Flow
0 $ -
85,000
$ -85,000
1 $
18,000
-62500
2 $
22,500
-35500
3 $
27,000
-4000
4 $
31,500
32000
5 $
36,000
32000
Payback
Period
3.13
5.2)
Net Present Value
Time Cash Flow Discount rate Cash flow
0 $ -85,000 1 -85000

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1 $ 18,000 0.893 16071
2 $ 22,500 0.797 17937
3 $ 27,000 0.712 19218
4 $ 31,500 0.636 20019
5 $ 36,000 0.567 20427
Net Present Value 8673
5.3)
Calculation of IRR
Year Cash Flows
0 $ -85,000
1 $ 18,000
2 $ 22,500
3 $ 27,000
4 $ 31,500
5 $ 36,000
IRR 16%
(Nobes & Parker, 2008)
5.4)
According to the above evaluation through the capital investment appraisal techniques
on the given project, it has been evaluated that the payback period of the company is 3.13
year and the net present value of the company is position i.e. $ 8673. And the internal rate of
return calculation explains about the total return of 16% which explains that the proposal is
quite better and company could accept it after evaluating the WACC of the company.

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Part F)
6.1)
Net Present Value Net Present Value
Tim
e
Cash Flow Discount
rate
Cash flow Ti
me
Cash Flow Discount
rate
Cash
flow
0 $ -
90,00,000
1 -9000000 0 $ -
10,00,000
1 -
1000000
1 $
35,00,000
0.87 3043478 1 $
6,00,000
0.87 521739
2 $
30,00,000
0.76 2268431 2 $
5,00,000
0.76 378072
3 $
30,00,000
0.66 1972549 3 $
4,00,000
0.66 263006
4 $
28,00,000
0.57 1600909 4 $
3,00,000
0.57 171526
5 $
25,00,000
0.50 1242942 5 $
2,00,000
0.50 99435
Net Present Value $
11,28,309
Net Present Value $
4,33,779
NPV of first project is $ 11,28,309 and the Second project’s NPV is $ 4,33,779 which
explains that project A is better.
6.2)
Calculation of IRR Calculation of IRR
Year Cash Flows Year Cash Flows
0 $ -90,00,000 0 $ -10,00,000
1 $ 35,00,000 1 $ 6,00,000
2 $ 30,00,000 2 $ 5,00,000
3 $ 30,00,000 3 $ 4,00,000
4 $ 28,00,000 4 $ 3,00,000
5 $ 25,00,000 5 $ 2,00,000
IRR 20% IRR 36%
Internal rate of return of project B is higher that means project B is better than project
A.
6.3)

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The above calculations brief that the NPV of first project is $ 11,28,309 and the
Second project’s NPV is $ 4,33,779 which explains that project A is better. On the other
hand, internal rate of return of project B is higher that means project B is better than project
A. these conflicts have arisen due to various different methods. It depends on the company to
choose the best project.

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18
Part G)
Year Project A P.V. factor Present value
0 $ -20,000 1 -20000
1 $ 3,000 0.86957 2609
2 $ 3,000 0.75614 2268
3 $ 3,000 0.65752 1973
4 $ 3,000 0.57175 1715
5 $ 3,000 0.49718 1492
6 $ 3,000 0.43233 1297
7 $ 3,000 0.37594 1128
8 $ 3,000 0.3269 981
9 $ 3,000 0.28426 853
10 $ 3,000 0.24718 742
NPV -4943.69
Year Project A P.V. factor Present value
0 $ -6,00,000 1 -600000
1 $ 1,20,000 0.86957 104348
2 $ 1,45,000 0.75614 109641
3 $ 1,70,000 0.65752 111778
4 $ 1,90,000 0.57175 108633
5 $ 2,20,000 0.49718 109379
6 $ 2,40,000 0.43233 103759
NPV 47537.04
(Brigham & Houston, 2012)
Year Project C P.V. factor Present value
0 $-1,50,000.00 1 -150000
1 $ 18,000.00 0.86957 15652
2 $ 17,000.00 0.75614 12854
3 $ 16,000.00 0.65752 10520
4 $ 15,000.00 0.57175 8576
5 $ 15,000.00 0.49718 7458

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19
6 $ 14,000.00 0.43233 6053
7 $ 13,000.00 0.37594 4887
8 $ 12,000.00 0.3269 3923
9 $ 11,000.00 0.28426 3127
10 $ 10,000.00 0.24718 2472
NPV -74478
Year Project A P.V. factor Present value
0 $ -1,00,000 1 -100000
1 $ - 0.86957 0
2 $ - 0.75614 0
3 $ - 0.65752 0
4 $ 25,000 0.57175 14294
5 $ 36,000 0.49718 17898
6 $ - 0.43233 0
7 $ 60,000 0.37594 22556
8 $ 72,000 0.3269 23537
9 $ 84,000 0.28426 23878
10
NPV 2163.39
The above table explains about the profitability position of entire 4 projects. It
explains that the Project B, C and D would offer positive returns to the company whereas
project A would offer negative returns, so company should accept the project B, C and D
only.

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20
Part H)
Cash
Flows
Alpha Beta Gamma
($ in
millions)
($ in
millions)
($ in
millions)
Initial
Outflo
w
– 1.5 – 0.4 – 7.5
Year 1 0.3 0.1 2
Year 2 0.5 0.2 3
Year 3 0.5 0.2 2
Year 4 0.4 0.1 1.5
Year 5 0.3 – 0.2 5.5
(Ward, 2012)
8.1)
Payback period Payback period
Time Cash
Flow
Cumul
ative
Cash
Flow
Time Cash
Flow
Cumul
ative
Cash
Flow
Time Cash
Flow
Cumul
ative
Cash
Flow
($ in
millio
ns)
($ in
millio
ns)
($ in
millio
ns)
($ in
millio
ns)
($ in
millio
ns)
($ in
millio
ns)
0 $
-1.50
$ -
1.50
0 $ -
0.40
$ -
0.40
0 $ -
7.50
$ -
7.50
1 $
0.30
$ -
1.00
1 $
0.10
$ -
0.20
1 $
2.00
$ -
4.50
2 $
0.50
$ -
0.50
2 $
0.20
$
-
2 $
3.00
$ -
2.50
3 $
0.50
$ -
0.10
3 $
0.20
$
0.10
3 $
2.00
$ -
1.00
4 $
0.40
$
0.20
4 $
0.10
$
0.20
4 $
1.50
$
4.50
5 $
0.30
$
0.20
5 – 0.2 $
0.20
5 $
5.50
$
4.50
Payback
Period
3.25 Paybac
k
Period
2.00 Paybac
k
Period
3.67

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21
8.2)
The table and calculation express that Alpha is better project than other projects. If the
cut off payback period is concerned, than project Alpha is required.
8.3)
In case of shortest payback period, project Beta should be accepted by the company.
8.4)
Payback period Payback period Payback period
Time Cash
Flo
w
Discou
nted
paybac
k
Cum
ulati
ve
Cash
Flo
w
Time Cash
Flo
w
Disc
ount
ed
payb
ack
Cu
mul
ativ
e
Cas
h
Flo
w
Time Cash
Flo
w
Disc
ount
ed
payb
ack
Cu
mul
ativ
e
Cas
h
Flo
w
($ in
milli
ons)
($ in
milli
ons)
($ in
milli
ons)
($ in
milli
ons)
($ in
milli
ons)
($ in
milli
ons)
0 -1.5 -1.30 -
1.30
0 -0.4 -
0.35
-
0.3
5
0 $ -
7.50
-
6.52
-
6.5
2
1 0.3 0.26 -
1.04
1 0.1 0.09 -
0.2
6
1 $
2.00
1.74 -
4.7
8
2 0.5 0.43 -
0.61
2 0.2 0.17 -
0.0
9
2 $
3.00
2.61 -
2.1
7
3 0.5 0.43 -
0.17
3 0.2 0.17 0.0
9
3 $
2.00
1.74 -
0.4
3
4 0.4 0.35 0.17 4 0.1 0.09 0.1
7
4 $
1.50
1.30 0.8
7
5 0.3 0.26 0.43 5 -0.2 -
0.17
0.0
0
5 $
5.50
4.78 5.6
5
Payb
ack
Perio
d
3.50 Payb
ack
Perio
d
2.5
0
Payb
ack
Perio
d
0.7
0

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22
Alpha project is performing well.
8.5)
Alpha project must be accepted by the company.
8.6)
In case of higher opportunity cost, Gamma project must be accepted by the company.

Business Finance
23
Part I)
Financial Data
Description Unilever plc
2017 2016 2015 2014 2013
Revenue 5271300
0000
532720
00000
484360
00000
4979700
0000
5132400
0000
Cost of goods
sold
2635650
0000
266360
00000
242180
00000
2489850
0000
2566200
0000
Gross profit 2635650
0000
266360
00000
242180
00000
2489850
0000
2566200
0000
Operating
profit
5271300
0000
532720
00000
484360
00000
4979700
0000
5132400
0000
Net profit 5184000
000
490900
0000
517100
0000
4842000
000
4480000
000
Interest 5680000
00
568000
000
568000
000
5680000
00
5680000
00
Inventory 4278000
000
0 0 3937000
000
4436000
000
Cash and cash
equivalents
3382000
000
338200
0000
338200
0000
3382000
000
3382000
000
Current assets 1388400
0000
126860
00000
123470
00000
1212200
0000
1214700
0000
Receivables 3329000
000
480400
0000
502900
0000
4831000
000
4436000
000
Current
liabilities
2055600
0000
200190
00000
196420
00000
1738200
0000
1581500
0000
Payables 5680000
00
0 383000
000
5000000
00
5260000
00
Shares 2840200
000
284020
0000
284020
0000
2840200
000
2840200
000
Equity 1635400
0000
154390
00000
136510
00000
1434400
0000
1515900
0000
Total liabilities 4007500
0000
368590
00000
343760
00000
3116900
0000
3100700
0000
Total assets 5642900
0000
522980
00000
480270
00000
4551300
0000
4616600
0000
Market share
price
57.89 0 0 0 0
Long-term debt 1093300
0000
109330
00000
109330
00000
1093300
0000
1093300
0000
Description Formula Unilever plc
2017 2016 2015 2014 2013

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24
Profitability
Return on
equity
Net
profit/revenues
9.83% 9.21% 10.68% 9.72% 8.73%
Return on
assets
Net profit/Equity 31.70% 31.80% 37.88% 33.76% 29.55%
Profit margin Net profit / Sales 9.83% 9.21% 10.68% 9.72% 8.73%
Asset turnover total assets /
total sales *365
390.73 358.33 361.92 333.60 328.32
Price earnings
ratio
Market value per
share / Earnings
per share
37.59
Liquidity
Cash ratio cash equivalents
+ cash / current
liabilities
0.675 0.634 0.629 0.697 0.768
Capital
intensity ratio
Total assets
/sales 1.07 0.98 0.99 0.91 0.90
Quick Ratio Current assets-
Inventory/curren
t liabilities
(0.04) 0.17 0.17 (0.03) (0.07)
Solvency
Times interest
earned
EBIT / Interest
expenses
92.80 93.79 85.27 87.67 90.36
Long term debt
ratio
Long term debt/
total assets 0.19 0.21 0.23 0.24 0.24
Equity
multiplier
Total assets /
stockholder's
equity
3.45 3.39 3.52 3.17 3.05
Part J)
10.1)

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25
Calculation of cost of equity (CAPM)
Fire Water Air
RF 4.00% 4.00% 4.00%
RM 12.00% 12.00% 12.00%
Beta 0.85 1.25 1.6
Required rate of return 10.80% 14.00% 16.80%
10.2)
Name of
Company
$m
invested
Required
rate of
return
Probability Portfolio
rate
Fire $2 10.80% 0.2 0.0216
Water $3 14.00% 0.3 0.042
Air $5 16.80% 0.5 0.084
TOTAL $10 14.76%
10.3)
Beta
RF 4.00%
RM 12.00%
Required rate of
return
14.76%
Beta 1.345
Calculation of required rate of
return
RF 4.00%
RM 12.00%
Beta 1.345
Required rate of
return
14.76%
10.4)
Name of Company $m
invested
Required
rate of
return
Probability Portfolio
rate
Water $ 4.00 14.00% 0.3 0.042

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26
Air $ 6.00 16.80% 0.5 0.084
TOTAL $ 10.00 12.60%
RM
RF 4.00%
RM 12.00%
Required rate of
return
12.60%
Beta 1.075
Calculation of required rate of
return
RF 4.00%
RM 12.00%
Beta 1.075
Required rate of
return
12.60%
10.5)
The calculations brief that the changes have lowered the risk of the portfolio
(Zimmerman & Yahya-Zadeh, 2011).

Business Finance
27
References:
Brigham, E. F., & Ehrhardt, M. C. (2013). Financial management: Theory & practice.
Cengage Learning.
Brigham, E. F., & Houston, J. F. (2012). Fundamentals of financial management. Cengage
Learning.
Ward, K. (2012). Strategic management accounting. Routledge.
Zimmerman, J. L., & Yahya-Zadeh, M. (2011). Accounting for decision making and
control. Issues in Accounting Education, 26(1), 258-259.