FINANCIALMANAGEMENT

ASSIGNMENT

4/3/2010
7.1) V= Rs.11x PVIFA 15% 5Years + Rs. 100x PVIFA15% 5Years
= Rs.11x 3.352 +Rs.100x 0.497
= Rs. 86.57
7.2) V= Rs.12x PVIFA14% 7Years +Rs. 100x PVIFA14% 7Years
= Rs.12x 4.288+ Rs.100x 0.4
= Rs. 91.46
V= Rs.12x PVIFA12% 7Years + Rs.100x PVIFA12% 7Years
= Rs.12x 4.564+ Rs.100x 0.452
= Rs.99.97
120  (1000  750) / 7
7.3) YTM=
0.4  1000  0.6  750

= 18.32%
14  (100  80) / 10
7.4) YTM=
0.6  80  0.4  100

= 18.18%
7.5) P= 6x PVIFA8% 12Years+ 100x PVIFA8% 12Years
= 6x 7.536+ 100x 0.397
= 84.916 84.92
7.6) Post Tax interest (C) A B
12(1- 0.3) = 8.4 10(1- 0.3) = 7
Post tax maturity 100-[(100-70) x 0.1] 100-[(100-60) x0.1]
value (M) =Rs. 97 = Rs. 96
For A
8.4  (97  70) / 10
Post Tax YTM= =13.74%
0.6  70  0.4  97

For B
7  (96  60) / 6
Post Tax YTM= = 17.47%
0.6  60  0.4  96
7.7) P= Rs.6x PVIFA8% 14Years + Rs.100x PVIFA8% 14Years
= Rs.6x 8.244+ Rs.100x 0.34
= Rs.83.464
7.8) Do = Rs.2 g= 0.06 r= 0.12
D1 Do (1  g ) 2  1.06
Po =    Rs.35.33
rg rg 0.12  0.06

P2 = Po x (1+g)2
= 35.33(1.06)2 = 39.696 Rs.39.7
7.9) Do = 12 g= 0.1 r= 0.15
12 12
Po =   240
0.15  0.1 0.05

P2 = Po x (1+g) = 240x 1.1= Rs. 264

7.10) Po = 32 Do =2 r= 0.12 g=?
Do (1  g )
P2 = Po (1+g) = rg

Do 2
 P2 = 
r  g 0.12  g
 32

 2= 32(0.12- g)
= 3.84- 32g
 32g= 1.84
 g= 5.75%
1.5(1  0.04)
7.11) 8=
r  0.04

8r+0.32= 1.44
R= 0.14= 14%

7.12) D1=1.5*1.12=1.68
D2=1.68*1.12=1.882
D3=1.882*1.12=2.11
 D4=2.11*1.12=2.36
D5=2.36*1.08=2.55
D6=2.55*1.08=2.75
D7=2.75*1.08=2.97
D8=2.97*1.08=3.21
Present Value
(@14%)=1.68*0.877+1.882*0.769+2.11*0.675+2.36*0.592+2.55*0.519+2.75*
0.456+2.97*0.4+3.21*0.35=10.63
Pg=Dg/(r-gn)=Dg(1+gn)/(r-gn)
=[1.5*1.124*1.084*1.05] /[0.14-0.05]
=37.46

Present Value=37.46/(1.148)=13.13

Sum of components=10.63+13.13=23.76

7.13) Do = 2 g= 15% g1= 10% n=5

D1= Do (1+g) = 2x (1.15) = 2.3
  1.15  
1   1.12 ^5   2.3(1.15)^ 4 (1.1) 1 
2 .3     
Po =  0.12  0.15   0.12  0.1 1.12  ^ 5 
 
 

  1.15  
1   1.12  
2.3     125.54
=   0.03 
 
 

= 127.84

7.14) Terminal Value= 140x PVIFA16% 4Years

= 140x 5.066
 = 709.24
Redemption Value= 100
TV of proceeds= 1709.24
Let ‘r’ be YTM
900(1+r)4 = 1709.24
Hence, r=17.39%
  1.18  
1   1.16  ^ 6  2  1.18^5  1.12 
   
7.15) P=2x  0.16  0.18   0.16  0.12   1 /(1.16)^ 6
 
 
 

=74.79
7.16) D1=Do(1+g)=4x(1.2)=4.8

  1.2  
1   1.18  ^8  4.8  1.2^ 7  1.1
   
Po=4.8x  0.18  .2   0.18  0.1   1 /(1.18)^8
 
 
 

=28.78+52.43
=81.21
7.17) Po=D1/(r-g)
Po=8/(0.15-0.12)=266.67
Po=(E1/r)+PVGO
Hence, 266.67=(20/0.15)+PVGO
PVGO=133.34

Cash flow from point of all investors

(all value in millions)

  Year 1 Year 2 Year 3 Year 4 Year 5
1. Revenue 30 30 30 30 30
2. Operating cost 20 20 20 20 20
3. Opportunity Cost 1 1 1 1 1
4. PBIDT(1-(2+3)) 9 9 9 9 9
5. Depreciation 3.75 2.81 2.11 1.58 1.19
6. PBIT 5.25 6.19 6.89 7.42 7.81
7. Interest          
a)Working Capital Interest 0.7 0.7 0.7 0.7 0.7
b)Term Loan Interest 24 24 16.8 7.2  
8. PBT(PBIT-(a+b)) -19.45 -18.51 -10.61 -0.48 7.11
9. Tax(30%) 5.835 5.553 3.183 0.144 2.133
10. Profit After Tax(PBT-Tax) -13.615 -12.957 -7.427 -0.336 4.977
11. Depreciation 3.75 2.81 2.11 1.58 1.19
12. Add back Depreciation(PAT+ Dep) -9.865 -10.147 -5.317 1.244 6.167
13. Net Salvage Value         5
14. Working capital recovered         5
Net Cash Inflow -9.865 -10.147 -5.317 1.244 16.167

MINI CASE (PAGE 325)-Solution

Cash flow from point of equity investors
(all value in millions)
Year Year Year Year
  1 2 Year 3 4 5
- -
1. Profit After Tax 13.62 12.96 -7.43 -0.34 4.98
2. Addback Depreciation 3.75 2.81 2.11 1.58 1.19
-
3. Profit Before Depreciation & After Tax -9.87 10.15 -5.32 1.24 6.17
4. Working Capital 5.00 5.00 5.00 5.00 5.00
5. Adjusted working capital -4.87 -5.15 -0.32 6.24 11.17
6. Repayment of Debt 0.00 16.00 32.00 32.00  
- -
Cash flow from equity investors point of view -4.87 21.15 -32.32 25.76 11.17

Note 1

Rent = 1 million = Opportunity Cost

Note 2

Calculating Depreciation Value

Written Down
Year Cost Dep (25%) Value
1 15.00 3.75 11.25
 2 11.25 2.81 8.44
3 8.44 2.11 6.33
4 6.33 1.58 4.75
5 4.75 1.19 3.56

Note 3

Calculating Term Loan Interest

No of Loan
Installment Amount Installment Interest(12%)
1 80 0 12
2 80 0 12
3 80 0 12
4 80 16 12
5 64 16 9.6
6 48 16 7.2
7 32 16 4.8
8 16 16 2.4

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