Business Finance: Financial Decisions, Loan & Investment Analysis

This assignment provides solutions to various business finance problems, including loan calculations, investment analysis, and key financial decisions. It covers topics such as calculating monthly loan installments, future value of investments, effective annual interest rates, and market capitalization. The assignment also discusses the three key financial decisions faced by managers: investment, financing, and dividend decisions. Furthermore, it differentiates between net income and net cash flow and demonstrates bond valuation calculations. Desklib offers more solved assignments and study resources for students.

Running head: BUSINESS FINANCE
Business Finance
Name of the Student:
Name of the University:
Author’s Note:

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:
Particulars Amount
Maximum Loan Value PV $5,00,000.00
Interest Rate p.a. r 3.75%
Loan Term ( in years) n 30
Nos. of Payments p.a. m 12
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:
Particulars Amount
Monthly Payments A $1,700.00
Interest Rate p.a. r 3.75%
Loan Term ( in years) n 30
Nos. of Payments p.a. m 12
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
Particulars Amount
Monthly Payments A $1,600.00
Interest Rate p.a. r 3.75%
Loan Term ( in years) n 30
Nos. of Payments p.a. m 12
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:
Particulars Alternative 1 Alternative 2
Interest Rate p.a. r 10.38% 10.00%
Compounding [periods m 1 4
Effective Interest Rate
EAR=[(1+r/m)^m]-
1 10.38% 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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Particulars Amount
Nos. of Shares Outstanding
(in million) n 1,500
Market Price per shares p $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:
Particulars Amount
Monthly Payments A $3,000.00
Interest Rate p.a. r 6.00%
Nos. of Payments p.a. m 12
Investment Amount PV=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.

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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:
Particulars Amount
Face Value F $1,000.00
Coupon Rate rc 10.00%
Period (in years) n 10
Nos. of Payments p.a. m 2
Coupon Payment C=(Fxrc)/m $50.00
Total nos. of Coupon
Payments t=nxm 20
Answer to Question 10:
Desi would be willing to pay $885.30 for the bond. The details are as follows:
Particulars Amount
Face Value F $1,000.00
Coupon Payment C $50.00
Nos. of Payments p.a. m 2
Total Nos. of Coupon
Payments t 20
Required Rate of Return r 12%
Bond Price
P=[Cx{1-(1+r/m)^-
t}/(r/m)]+[Fx{(1+r
/m)^-t}] $885.30

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Bibliography:
Damodaran, A., 2016. Damodaran on valuation: security analysis for investment and corporate
finance (Vol. 324). John Wiley & Sons
Titman, S., Keown, A.J. and Martin, J.D., 2017. Financial management: Principles and
applications. Pearson.