## Final

BCO212 Business Finance I | Professor Charlotte Fleury | ||||||||

Final Term Assignment | |||||||||

Task | |||||||||

– Individual task | |||||||||

– From Unit 1 to 5 | |||||||||

Formalities: | |||||||||

– Font: Arial 12 pts. Format Excel, not PDF | |||||||||

– The in-text References and the Bibliography have to be in Harvard’s citation style. | |||||||||

Submission: Week 8 in class – in EXCEL FORMAT Via Moodle | |||||||||

Weight: This task is a 40% of your total grade for this subject | |||||||||

Questions/ theory (20 points in total) | |||||||||

1. Mention two advantages of the sole proprietorship ? | |||||||||

2. Usually which pay back period will be longer; pay back period or discounted pay back period ? Explain | |||||||||

3. What is the difference between present value, net present value and future value | |||||||||

4. What is the name of the amortization method where most of the depreciation is accounted for at the beginning of the asset life? | |||||||||

5. How can a Fund Manager avoid systematic risk ? | |||||||||

Exercises (exercises/ 80 points in total) | |||||||||

Exercise 1. | |||||||||

A company is considering expanding in Asia or LATAM, considering the following initial investments and expected future cash flows: | |||||||||

The discount rate over 4 years is 8% | US | Asia | |||||||

Initial investment | -500,000 | -325,000 | |||||||

Year 1 | 100,000 | 80,000 | |||||||

Year 2 | 125,000 | 85,000 | |||||||

Year 3 | 150,000 | 90,000 | |||||||

Year 4 | 175,000 | 95,000 | |||||||

Calculate the present value of the sum of future cash flows, the net present value (NPV), Benefit cost ratio (BCR) and the internal rate of return (IRR) | |||||||||

Advise on where it would be more profitable for the company to expand. | |||||||||

Exercise 2. | |||||||||

A company A borrows at 5% and has a 70% of its capital structure in equity. | |||||||||

Considering that corporate tax is at 35% and that the weighted average cost of capital is 5,5%, what if the cost of equity? Debt and equity combined total EUR 219,500,000 combined? | |||||||||

Exercise 3. | |||||||||

An investor has EUR 10,000 and can expect to earn a 4% annual interest on that sum each year for the next 10 years with interest compounded semi-annually, what is the future value (FV)? | |||||||||

Exercise 4. | |||||||||

As new analyst of an investment bank, you are asked to calculate the required rate of returns or CAPM (capital asset pricing model) of the following US companies. | |||||||||

The T-Bill (US Government short-term bond) has a 3% rate and the risk premium is 7%. | |||||||||

beta | |||||||||

Company A | 0.32 | ||||||||

Company B | 0.55 | ||||||||

Company C | 1.23 | ||||||||

Company D | 1.67 | ||||||||

If the client is risk averse, which company would you advise him to invest in ? | |||||||||

Exercise 5. | |||||||||

Considering that the annual return is of 6%, which option is best: receive 5,000 now or 9,000 ten years from now? | |||||||||

Exercise 6. | |||||||||

Imagine you plan to save 3,000 a year for 25 years for your retirement. The annually compounded interest rate is 3%. How much must you save by the time you retire? | |||||||||

Exercise 7. | |||||||||

A retail investor buys 1,000 shares of Company A at a EUR 79 per-unit price and hold it for 4 years, during when Company A paid yearly dividends of EUR 1,12 per share. | |||||||||

After 4 years, the retail investor sells all 1,0000 shares at a sale price of EUR 81. What is the rate of return (RoR) during the 4 years? | |||||||||

Exercise 8. | |||||||||

Determine the risk premium and a fair expected (or required) rate of return for a share that has a beta of 1.35 when the risk-free rate is 3,5% and the expected market return is 12% | |||||||||

WACC = ((E/ V) * Re) + (((D/V)*Rd) * (1-T))) |

## Formula

PV = FV / I1+ (i/n)) ^n*t | |

FV = PV * (1+ (i/n)) ^n*t | |

FV = PMT *((((1+r/n)^(t*n))-1)/(r/n)) | |

Expected Return = Σ (Return x Probability) | |

WACC = ((E/ V) * Re) + (((D/V)*Rd) * (1-T))) |