Question 10. Loan Amount $700,000 Annual Interest rate 8.5% Term in Years 5 Payments per year 12 a) Prepare an amortisation schedule premised upon payments that are treated as a deferred annuity b) Immediately after the 30th payment the bank advised an increase in the annual interest rate to 8%. Question 11. Calculate the price of commercial paper with a face value of $1 million and 180 days to maturity if the yield is 8.9 per cent per annum. Question 12. Debenture Face Value $3000 Coupon Rate 12.5% 30% probability that rates will fall to 11% 70% probability that rates will increase to 13% Par value $2800 a) Calculate the Market Price of the Non-Callable Debenture b) What would the coupon rate need to be for the debentures to sell at par? c) Calculate the cost of the call provision Question 13. The Thompson Paint Company uses 70 000 litres of pigment per year. The cost of ordering pigment is $200 per order and the cost of carrying the pigment in inventory is $1.00 per litre per year. The firm uses pigment at a constant rate every day throughout the year. a) Calculate the economic order quantity (EOQ). b) Calculate the ordering cost. c) Calculate the ordering days d) Calculate the holding cost e) Calculate the average inventory f) Calculate the annual total cost g) Assuming that it takes 15 days to receive an order once it has been placed, determine the reorder point in terms of litres of pigment. (Note: Use a 365-day year.) Question 14. The finance officer has estimated that Flippers Ltd will require 30,000 units of product over the next 12 months. She has estimated that the cost of acquisition is $2.50 per unit and the carrying cost is 55 cents per unit. The cost per unit of product is $11. What would be the economic order quantity for Slippers? Question 15. Calculate the Black—Scholes price for a call option with the following features: share price $25.00, exercise price $23.50, term to expiry 1 year, risk-free interest rate 5. 5 per cent per annum (compounding annually) and volatility (variance) 0.09 per annum. Question 16. Determine the profit and/or loss to the following: 1 Call Options- Buyer/Holder and Seller/Writer Market Price $10.50 Exercise Price $9.00 Call Premium $0.50 2 Put Options- Buyer/Holder and Seller/Writer Market Price $8.25 Exercise Price $19.75 Call Premium $0.70 Question 17. Cash Price per Unit $ 61.00 Variable Cost per Unit $ 32.00 Current Quantity Sold per Month 2000 Quantity Sold under New Policy 2200 Monthly Required Return 2.75% Terms 30 days The company is planning to switch from a cash basis to offering credit terms. a) Calculate the cost of switching using both the One Shot Approach and the Accounts Receivable Approach. b) If the new Credit price was set at $63 per Unit and 2.5% of sales were uncollectable, calculate the NPV of the switch. c) Calculate the default rate that makes NPV equal to zero. d) Calculate the NPV associated with a One-Time Sale. e) Calculate the percentage chance the company would have of collecting given the one time sale extension of credit. f) Calculate the NPV associated with a repeat sale. Question 18. Busy Ltd is considering the acquisition of Bee Finance. The values of the two companies as separate entities are $8 million and $4 million, respectively. Busy estimates that by combining the two companies it will reduce selling and administrative costs by $250,000 per annum in perpetuity. Busy can either pay $5.25 million cash for Bee or offer Bee a 50 per cent holding in Busy. If the opportunity cost of capital is 10 per cent per annum: (a) what is the gain, in present value terms, from the merger? (b) what is the net cost of the cash offer? (c) what is the net cost of the share alternative? (d) what is the NPV of the acquisition under: • the cash offer? • the share offer? Question 19. You are an analyst for Black Ltd which is considering the acquisition of Beard Ltd. You have identified the following effects of the takeover: Investment of $500,000 will be required immediately to upgrade some of Beard's older assets; Asset upgrading, economies of scale and improved efficiency will increase net operating cash flows by $320,000 per annum in perpetuity; Some of Beard's assets which have been producing a cash inflow of $90,000 per annum will be sold. The new owners of these assets should be able to use them more profitably and sale proceeds are expected to be $810,000; New plant costing $1.35 million will be purchased and is expected to generate net operating cash flows of $240,000 per annum in perpetuity. Beard's activities are all of the same risk and the required rate of return is 11 per cent per annum. Beard has 5 million shares on issue with a market price of $2..25 Assuming that the market price equals value as an independent entity: a) Estimate the gain from the takeover; and b) Estimate the maximum price that Endeavour should be prepared to pay for Beard's shares.

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