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)))

Sheet1