Financial Problems Analysis: Finance Assignment for [University Name]

This assignment provides a comprehensive analysis of various financial problems. It begins with detailed calculations related to loan installments, interest, and refinancing decisions. The document then delves into bond valuation, exploring market returns and the impact of coupon rates on bond prices. Capital budgeting techniques, including payback period, NPV, and IRR, are applied to evaluate investment projects. Risk classification and its impact on financial decisions are also discussed. Furthermore, the assignment analyzes the impact of different investment strategies, and offers solutions for the renovation vs. replacement of an asset. Finally, the assignment concludes with an analysis of financial ratios and portfolio management using the CAPM model, offering valuable insights into company valuation and investment strategies.

Running Head: Financial Problems Analysis
Financial Problems
Analysis

Financial Problems Analysis
1
Table of Contents
Question-1.............................................................................................................................................1
Question-2.............................................................................................................................................5
Question-3.............................................................................................................................................6
Question 4.............................................................................................................................................7
Question 5.............................................................................................................................................8
Question -6..........................................................................................................................................10
Question 7...........................................................................................................................................13
Question 8...........................................................................................................................................16
Question 9...........................................................................................................................................18
Question10..........................................................................................................................................19
References...........................................................................................................................................22
Appendix-1......................................................................................................................................23
Appendix 2......................................................................................................................................27
Appendix 3......................................................................................................................................29
.........................................................................................................................................................29

Financial Problems Analysis
2
Question-1
Question-1(1)
Amount per Instalment
Loan
$20,00,000.0
0
Rate 0.6667%
Terms Monthly
Number of Months 120
Instalment $ 24,265.52
Question-1 (2)
Amount of Interest in 1st Instalment
Opening Loan Balance $20,00,000.00
Rate 0.67%
Interest $ 13,333.33
Question-1 (3)
Amount of Principal in 1st Instalment
Instalment $ 24,265.52
Less: Interest $ 13,333.33
Principal $ 10,932.19
Question-1 (4) Refer APPENDIX 1
Remaining amount to be paid off after
36th payment
$15,56,869.8
8
Question-1 (5) Refer APPENDIX 1 & 2

Financial Problems Analysis
3
Interest cost for the remaining $ 4,81,463.28
7 years @ 8 %
Less: Interest cost for the 7 years @ 7% $ 4,16,906.58
Interest Savings in Refinancing $ 64,556.70
Less: Refinancing Cost $ 2,50,000.00
Net Loss
$(1,85,443.30
)
Therefore the loan should not be
Refinanced
Question-1 (6)
The Loan Instalment if payments
are scheduled quarterly
Loan
$20,00,000.0
0
Rate 2%
Terms Quarterly
Number of Months 40
Instalment $ 73,111.50
Question-1 (7) Refer APPENDIX 3
Remaining amount to be $15,55,905.65
paid off by Casino.com after 12th
payment

Financial Problems Analysis
4
Question-1 (8)
The annual rate for 8% loan is the nominal rate and that is 7.7208
Using r = m × [ ( 1 + I)1/m - 1
Question-1 (9)
Calculation of Effective Rate
Nominal Rate 8%
Compounding Monthly
Periods 120
Effective rate 8.30%

Financial Problems Analysis
5

Financial Problems Analysis
6
Question-2
Question-2 (a)
Market Rate Return
=100-78.12
78.12
=21.88
78.12
=28% (For 10 Years)
= 2.8% p.a.
Question-2(b)
Face value 100
Coupon Rate 0.00%
YTM 3.50%
Interest 0
Periods 9
Bond price after one year ₹ 73.37
Return for the year
Interest for 1st year 0
Purchase price 78.12
Sale price ₹ 73.37
Return (%) -6.08%
Question 2 (C)

Financial Problems Analysis
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Face value 10000
Coupon 2.50%
YTM* 2.50%
Bo (Bond Price) 1000
Face value 1000
Coupon 2.50%
YTM 3.50%
Interest 25
Periods 9
Bond price after one year
₹
923.92
Return for the year
Interest for 1st year 25
Purchase price 1000
Sale price
₹
923.92
Return (%) -5.11%
Notes: *Because bond is selling at par, YTM would be equal to the coupon
rate.
As in Part (b) no coupon rate is there therefore no amount of interest is
earned on it.
Therefore the loss is higher in Part (b).
In Part c) Interest at the rate of 2.5% is earned therefore it has suffered lesser loss.

Financial Problems Analysis
8
Question-3
Question 3(a)
P0 = D1
Calculation of Current Market Price Ke-G
= 3.7
.11-.05
$61.67
Question 3(b)
Calculation of Rate of Return Ke= (D1/P0) + g
= 11% p.a.

Financial Problems Analysis
9
Question 4
Risk Classification Risk
Janet Yellen retires as Chairman of the Federal
Reserve and Arnold Schwarzenegger is
appointed to take her place. Systematic Risk
Martha Stewart is convicted of insider trading
and is sentenced to prison. Unsystematic Risk
An OPEC embargo raises the world market price
of oil. Systematic Risk
A major consumer products firm loses a
product liability case. Unsystematic Risk
The US Supreme Court rules that no employer
can lay off an employee without first giving 30
days’ notice. Systematic Risk

Financial Problems Analysis
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Question 5
Year Cash Flows
Initial Investment -85000
1 18000
2 22500
3 27000
4 31500
5 36000
Year
Discounting
Factors Cash Flows
PV of Cash
Flows
Cumulative
Cash flows
0 1 -85000 -85000.00 0
1 0.893 18000 16071.00 18000
2 0.797 22500 17937.00 40500
3 0.712 27000 19218.00 67500
4 0.636 31500 20019.00 99000
5 0.567 36000 20427.00 135000
Net Present Value 8672.00
(i) Payback Period = 3 Years + 17500.00
31500.00
= 3 Years + 0.56
= 3.56Years
(ii) NPV = 8672.00

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(iii) Statement Of Calculation Of IRR For the Proposed Investment :-
NPV @ 12% NPV @ 15% NPV @ 16% NPV @ 18%
0
Yea
r -85000.00 -85000.00 -85000.00 -85000.00
1-
5th
Yea
r 93672.54 86326.93 84073.40 79829.70
8672.54 1326.93 -926.60 -5170.30
IRR = Lower Rate + NPV at Lower Rate * (Higher Rate -Lower Rate)
PV at Lower Rate - PV at Upper
Rate
12% + 8672.54 * (16-12)
9599.14
12% + 3.61
= 15.61%
The Project should be accepted since the NPV is positive and IRR is also above the
cost of capital to the Reynolds Enterprises. Since both NPV and IRR are
recommending to accept the project, the Reynolds enterprise should accept the(iv)