FINC3304 Business Finance Mini-Projects: Analysis and Evaluation

This document presents a detailed solution to three mini-projects for a Business Finance course (FINC3304). Mini-Project 1 focuses on mortgage loan analysis, calculating monthly payments and creating an amortization schedule for a 15-year loan. Mini-Project 2 involves capital budgeting, evaluating a project's feasibility using NPV, PI, and IRR. Mini-Project 3 conducts a ratio analysis of T-Mobile, assessing profitability, liquidity, leverage, and debt coverage. It also computes the company's WACC, considering the cost of debt, cost of equity (using CAPM), and capital structure. The analysis utilizes Excel for calculations and includes relevant financial concepts and interpretations, offering a comprehensive understanding of financial management principles.

BUSINESS FINANCE
STUDENT ID:
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MINI-PROJECT 1
Sale price of house = $ 350,000
Down-payment to be done to purchase the house = 20% or (20/100)*350,000 = $ 70,000
The remaining amount has been assumed as loan = $350,000 - $ 70,000 = $ 280,000
(1) The expected monthly payment to discharge the above loan in 15 years is $ 2,015.45 which
has been computed using the PMT function in Excel.
(2) The amortization schedule for the above mortgage loan has been prepared using Excel for the
period starting from August 2019 when the first loan repayment would be done to July 2034
when the last loan repayment is done.
(3) For the tax purposes, the deduction or rebate would be available only on the interest
components of the EMI and not the overall amount. Considering that the first payment in
made in August 2019, hence the total interest deduction would comprise of interest payments
done in five EMI from August 2019 to December 2019. This amounts to $ 4,164.63 as has
been computed in attached Excel.
MINI-PROJECT 2
(1) The requisite time line for the project is shown below.

(2) The requisite capital budgeting parameters have been computed using Excel functions or
computations. The requisite summary is indicated below.
(3) The requisite project should not be taken because of the following reasons (Arnold, 2015).
 NPV of the project is negative owing to which the shareholders’ wealth would be
adversely impacted.
 PI is lower than 1 since for economically feasible project, this value should exceed 1.
 The IRR of the project is lesser than the cost of capital which also implies that the
given project is not feasible.
MINI-PROJECT 3
1) The company selected for this task is T-Mobile. A ratio analysis of the company has been
carried out using the selected financial data on a consolidated basis for 2017 and 2018. The
ratios obtained are illustrated as follows.
It is evident that the profitability of the company has improved on the operating level as the
margins have expanded in 2018 as compared to the corresponding figure in 2017. However,
there has been a significant decrease in the net profit margin in 2018 which may be attributed to
tax benefit that the company had in 2017 which was absent in 2018. Owing to the lower net

profits, there has been a decrease in the ROA and ROE of the company in 2018 as compared to
the corresponding figures in 2017 (Damodaran, 2015). The short term liquidity for the company
has improved as reflected from a higher value of current ratio in 2018 as compared to 2017.
However, the company should make further improvements in this regards so that this crosses 1.
There is a decrease in the leverage on the balance sheet as there is improvement on the debt to
equity and debt to assets ratio. Finally, the debt coverage ratio for the company has improved in
2018 which indicates better ability of the company to discharge the ongoing interest obligations
(Brealey, Myers & Allen, 2014).
2) For the computation of the respective weight of the capital components, it has been assumed
that the debt stated in the books of account in 2018 is the existing market value. For the
equity, market value has been taken based on the closing value of TMobile stock on May 10,
2019. The requisite computations are summarized below.
3) The before tax cost of debt has been computed considering the interest expense borne by the
company in 2018 on the total debt outstanding in that year. Further, adjustment based on the
effective tax rate is done so as to compute the after tax cost of debt as shown below.
4) Considering that for the year ending on December 31, 2018, there are no outstanding
preferred shares for the company, hence the cost of these is irrelevant and cannot be
computed.

5) Using the CAPM method, the cost of equity has been computed as shown below. The
requisite input values have been searched from the internet.
It is evident that the TMobile stock is defensive in nature since the beta value is lower than 1.
6) Considering the respective weights of debt & equity along with the after tax cost of these, the
WACC for the company has been computed as follows.
It is evident that the cost of capital is not too high for the company primarily because of the low
beta which implies lower cost of equity. Also, the capital structure of the company is such that
the amount of leverage is not very high considering the market value of equity and comparison
of the same with the debt value. This further leads to lower business risk and cheaper financing
(Lasher, 2016).

Referencing
Arnold, G. (2015). Corporate Financial Management (3rded.). Sydney: Financial Times
Management.
Brealey, R. A., Myers, S. C., & Allen, F. (2014). Principles of corporate finance (2nd ed.). New
York: McGraw-Hill Inc.
Damodaran, A. (2015). Applied corporate finance: A user’s manual (3rd ed.). New York: Wiley,
John & Sons.
Lasher, W. R., (2016) Practical Financial Management (5thed.). London: South- Western
College Publisher.