MBA Mathematics Assignment - Financial Analysis and Valuation

This MBA mathematics assignment provides solutions to various financial calculations, including the cost of debt, cost of preferred stock, cost of common equity using the CAPM model, and the dividend discount model. It also calculates the cost of common equity using the bond yield plus risk premium, and the average cost of common equity. The assignment further delves into the calculation of the weighted average cost of capital (WACC). The document includes references to academic sources supporting the calculations and methodologies used. This resource is designed to help students understand and solve complex financial problems, offering a clear and concise approach to financial analysis and valuation.

Running head: MBA MATHEMATCIS ASSIGNMENT
Name of the Student
Name of the University
Author note

1MBA MATHEMATCIS ASSIGNMENT
Answer to Q1:
Particulars Amount
Coupon rate A 12%
Coupons per year B 2
Years to maturity C 15
Price D 1153.72
Face Value E 1000
Tax F 40%
Coupon payment G=(A*E)/B 60
Total No. of coupon payments H=B*C 30
Cost of debt
I=RATE(H,G,-
D,E,0)*B 10.00%
Net cost of debt J=I*(1-F) 6.00%
Answer to Q2:
Particulars Amount
Par Value A $100.00
Nominal Dividend Rate B 10%
Dividend per share C=AxB $10.00
Price D $110.00
Cost of preferred stock E=C/D 9.09%
Answer to Q3:
Particulars Amount
Risk free rate A 7%
Market rate of return B 6%
Beta of the security C 1.2
Estimated Cost of common equity D=A+(C*(B-A)) 5.80%
Answer to Q4:
Particulars Amount
Price A $50.00
Current dividend B $4.19
Constant growth rate C 5%
Cost of common equity D=B*(1+C)/A+C 13.80%
Answer to Q5:

2MBA MATHEMATCIS ASSIGNMENT
Particulars Amount
Bond yield + RP premium A 4%
Market interest debt B 10%
Estimate C=A+B 14%
Answer to Q6:
Particulars Amount
CAPM A 14.20%
DCF B 13.80%
rd + RP C 14.00%
Average D=(A+B+C)/3 0.14
Answer to Q7:
Particulars
Amoun
t
Net proceeds after flotation A $42.50
Current dividend B $4.19
Constant growth rate C 5%
Cost of common equity
D=B*(1+C)/
A+C 15.35%
Answer to Q8:
Particulars Weight Particulars Amount
wd A 30% rd (1 – T) D 6.00%
wp B 10% rp E 9.00%
wc C 60% rs F 14.00%
WACC= A*D+B*E+C*F 11.100
%

3MBA MATHEMATCIS ASSIGNMENT
References:
Baños-Caballero, S., García-Teruel, P. J., & Martínez-Solano, P. (2014). Working capital
management, corporate performance, and financial constraints. Journal of Business
Research, 67(3), 332-338.
Cost of Equity - Formula, Guide, How to Calculate Cost of Equity. (2018). Corporate
Finance Institute. Retrieved 5 April 2018, from
https://corporatefinanceinstitute.com/resources/knowledge/finance/cost-of-equity-
guide/
Dempsey, M. (2013). The capital asset pricing model (CAPM): the history of a failed
revolutionary idea in finance?. Abacus, 49(S1), 7-23.
DiMasi, J. A., Grabowski, H. G., & Hansen, R. W. (2016). Innovation in the pharmaceutical
industry: new estimates of R&D costs. Journal of health economics, 47, 20-33.
The Cost of Capital: The Most Misunderstood, Misestimated, and Misused Number in
Finance. (2018). Cfainstitute.org. Retrieved 5 April 2018, from
https://www.cfainstitute.org/learning/products/multimedia/Pages/127928.aspx?
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