Financial Principles Exam Solutions - Semester 1, University Name

This finance assignment provides solutions to a Financial Principles exam covering a range of topics including time value of money, present and future value calculations, and loan amortization. The solution includes answers to multiple-choice questions, true/false statements, and problem-solving exercises. Key areas addressed are calculating future and present values, determining annual payments for amortized loans, understanding fiscal and monetary policies, and analyzing investment decisions. The assignment also covers weighted average cost of capital (WACC), the Capital Asset Pricing Model (CAPM), and dividend discount models, as well as net present value (NPV) and investment return calculations. The solutions demonstrate the application of financial concepts to real-world scenarios and the ability to analyze and interpret financial data.

Running head: FINANCE ASSIGNMENT
Finance Assignment
Name of the Student:
Name of the University:
Author’s Note:

1FINANCE ASSIGNMENT
Question 1 $489
Question 2 $3,952
Question 3 $10,018
Question 4 $4,076
Question 5 TRUE
Question 6 TRUE
Question 7 $28,982
Question 8 TRUE
Question 9 TRUE
Question 10 $9,646
Question 11 TRUE
Question 12 TRUE
Question 13 TRUE
Question 14 3.800%
Question 15 (A) $-81.05
Question 15 (B) $-87.57
Question 15 (C) $-91.32
Question 16) Secured Loan, Convertible Bond, Tier 1, Senior Unsecured

2FINANCE ASSIGNMENT
Question 17) 5.00%
Question 18)
a) Interest rates and bond prices have an inverse relationship, thus it goes to well show that that
interest rates falls then the bond prices would be well increasing.
b) If the bond yield is lower than the coupon for the bond then the price of the bond on a
comparative basis would be higher.
c) If the bond is trading at a discount that is $90 this goes to well show that the yield required on
the bond is greater.
d) High coupon bonds sell at a higher rate than low coupon bonds.
Question 19)
a) Decrease
b) Increase
c) Decrease
20) True
21) False
22) False
23) True
24) WACC: 13.99%

3FINANCE ASSIGNMENT
Q24) WACC
Particulars Amount ($) Weight % Rate %
Debt $ 105,000,000 51.22% 5.0%
Post Tax Debt 3.50%
Equity $ 100,000,000 48.78% 25%
Total $ 205,000,000 100.00% 13.99%
25) Debt does allow a company to borrow at a cheaper rate and this in turn lowers down the
discount rate for the firm. However the financial risk that is associated with the firm at the same
time should not be ignored that is the risk of increasing debt could potentially hurt the
profitability and the operations of the company.
26) CAPM model can be well applied for calculating the required return:
Re: Rf+Beta*(Rm-rf)
Re: 16%
Q25 CAPM
Risk Free Rate 1%
Market Return 11%
Beta 1.5
Required Return 16.00%
27) If r is 10% and market return is 11% then the beta value will be 10%/11% that is around
0.91.

4FINANCE ASSIGNMENT
Q28) a)
Q28) A)
Dividend Pay-out Ratio
DPS $ 2.72
EPS $ 12.01
Dividend Pay-out Ratio 22.65%
Net Profit $ 59,531
Shares Outstanding 4955
Earnings Per Share $ 12.01
Market Price Per Share $ 225.74
Earnings Per Share $ 12.01
P/E Ratio $ 18.79
Dividend Discount Model
Dividend (D0) $ 2.72
Growth Rate (g) 4.30%
Dividend (D1) $ 2.84
Required Return 6.25%
Intrinsic Value $ 145.49
Current Price $ 225.74
Recommendation Overpriced
b)
Q28) B)
Dividend Discount Model
Growth Rate (g) 4.30%
Dividend (D1) $ 3.00
Required Return 6.25%
Intrinsic Value $ 153.85
c) If the stock is trading at the level of $212.24 the investors should not buy the stock as the same
is currently larger than the intrinsic value of the share, which was determined to be around
$153.85 as per the expected dividend that would be paid by the company in the year 2019.

5FINANCE ASSIGNMENT
Growth rate applied and required rate of return that is applied in the model plays a crucial
role and of any of the factor changes then the same would make the DDM Model to be
irrelevant.
29) NPV: 4.76 Million
Question 29
Particulars 0 1 2 3
Initial Investment -10,000,000
Cash Inflows 5,000,000 6,000,000 7,000,000
Net Cash Flows -10,000,000 5,000,000 6,000,000 7,000,000
Discount Factor 1.00 0.91 0.83 0.75
Discounted Cash
Flows
$ -
10,000,000
$
4,545,455
$
4,958,678
$
5,259,204
NPV
$
4,763,336
30) B) The Company should pursue both projects if funds are unlimited.
31)
Question 31
Investment 100,000
Investment Payback 125,000
Time Period (In Years) 1
Return 25%
32)
Question 32
Investment 100,000
Investment Payback 75,000
Time Period (In Years) 1
Return -25%

6FINANCE ASSIGNMENT
33)
Question 33
Total Investment 100,000
Equity Investment 60,000
Debt Borrowings 40%
Interest Rate 8%
Interest Amount 4,800
Future Value from Investment 125,000
Net Cash Flow from Investment 120,200
Return for Investment 100.33%
34)
Question 34
Total Investment 100,000
Equity Investment 60,000
Debt Borrowings 40%
Interest Rate 8%
Interest Amount 4,800
Future Value from Investment 75,000
Net Cash Flow from Investment 70,200
Return for Investment 17.00%