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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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