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HCM-213 Financial Management
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HCM-213 Financial Management
0 Download2 Pages / 468 Words
Course Code: HCM213
University: Saudi Electronic University
MyAssignmentHelp.com is not sponsored or endorsed by this college or university
Country: Saudi Arabia
Questions:
1.a Determine the payback for this new center.b. Determine the net present value using a cost of capital of 15 percent. Should the project be accepted?2. Assume a zero coupon Bond with a $1000 Par Value and 15-year maturity, calculate its rate of return if the market price equal $315.240. 3. A tax exempt bond was issued at a 10% coupon bond and a maturity of 15 years. The Par Value of the bond is $1000.At what required market rate (10%, 5% or 14%) does the above bond sell at a discount? At a premium?
Answers:
Payback Period
Years
0
1
2
3
4
5
Initial Investment
($40,000,000)
Net operating cash flows
10,000,000
12,000,000
18,000,000
20,000,000
30,000,000
Payback Period
The Payback for this project could be conducted by the recovery of the initial Investment
Initial Investment
($40,000,000)
Recovery of Investment
10,000,000
12,000,000
18,000,000
20,000,000
30,000,000
Recovery Per Year
Year 1
Year 2
Year 3
Amount Recovered
10,000,000
22,000,000
40,000,000
Total Payback Period
3 Years
Net Present Value
Years
0
1
2
3
4
5
Initial Investment
($40,000,000)
Net operating cash flows
10,000,000
12,000,000
18,000,000
20,000,000
30,000,000
55,955,035
The Net Present Value determined using the 15% discount rate
Particulars
Amount ($)
Face Value (F.V)
1000
Time (N)
15
Annual Coupon (PMT)
0
Market Price (Present Value)
315.24
Return
8.00%
Particulars
Amount ($)
Amount ($)
Amount ($)
Face Value (F.V)
1000
1000
1000
Coupon Rate
10%
10%
10%
Coupon Amount
100
100
100
Interest Rate
10%
5%
14%
Price (Present Value)
1000
1518.98
754.31
Status
Par Bond
Premium Bond
Discount
Bibliography
Banerjee, S. (2015). Contravention Between NPV & IRR Due to Timing of Cash Flows: A Case of Capital Budgeting Decision of an Oil Refinery Company. American Journal of Theoretical and Applied Business, 1(2), 48-52.
Barnard, B. (2017). Rating migration and bond valuation: towards ahistorical rating migration matrices and default probability term structures.
Lane, K., & Rosewall, T. (2015). Firms’ investment decisions and interest rates. Reserve Bank of Australia Bulletin. June quarter, 1-7.
Magni, C. A., & Martin, J. (2017). The Reinvestment Rate Assumption Fallacy for IRR and NPV.
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