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FIN700 International Finance

tag 0 Download 10 Pages / 2,330 Words tag 28-06-2021
  • Course Code: FIN700
  • University: American University
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  • Country: United States

Question:

You are required to complete this Assignment in Groups of 2 or 3 or 4 people. Groups of 1 or more than 4 persons will incur a penalty of 5 marks out of 30%.

All members of the Group should come from the same Tutorial class. You may consult and discuss the Assignment topic with others, but you must write up your answers yourselves. Penalties for copying and plagiarism are severe.

Ram Shack Ltd has just paid a dividend of $3.00 a share. Investors require a 13% per annum return on investments such as Ram Shack. What would a share in Ram Shack Ltd be expected to sell for today (January, 2018) if the dividend is expected to increase by 20% in January, 2019, 16% in January, 2020, 12% in January, 2021 and thereafter by 5 per cent a year forever, from January, 2022 onwards?

This question relates to the time value of money and deferred annuities.

Colin Way is age 40 today and plane to retire on his 65th birthday. With future inflation, Colin estimates that he will require around $2,000,000 at age 65 to ensure that he will have a comfortable life in retirement. He believes that he can contribute $3,000 at the end of each month, starting in one months’ time and finishing on his 65th birthday.

If the fund to which he contributes earns 6% per annum, compounded monthly (after tax), how much will he have at age 65? Will he have achieved his targeted sum? What is the surplus or the shortfall?

Using the fund balance, Colin then wishes to commence a monthly pension payable by the fund starting one month after his 65th birthday, and ending on his 85th birthday, after which he expects that the fund will be fully expended. If the fund continues to earn the above return of 6% per annum, compounded monthly, how much monthly pension will Colin receive, if the fund balance reduces to zero as planned after the last pension payment on his 85th birthday?

Ray and Betty Read wish to borrow $600,000 to buy a home. The loan from Battlers Bank requires equal monthly repayments over 20 years, and carries.an interest rate of 4.8% per annum, compounded monthly. The first repayment is due at the end of the first month.

You are required to calculate:

i)the effective annual interest rate on the above loan.

ii)the amount of the monthly repayment (consisting of interest and principal repayment components) if the same amount is to be repaid every month over the 20 year period of the loan.

iii)the amount of $X, if - instead of the above - Battlers Bank agrees that Ray and Betty will repay the loan by paying the bank $3,300 per month for the first 12 months, then $3,750 a month for the next 12 months, and after that $X per month for the balance of the 20 year term.

iv)how long (in years and months) it would take to repay the loan if, alternatively, Ray and Betty decide to repay $3,500 per month, with the first repayment again being at the end of the first month after taking the loan, and continuing until the loan was repaid.

v)under option iv) above, the amount of the final repayment. [NOTE: Towards  the end of the loan repayment period, after the final full monthly instalment of $3,500 is paid, a lesser amount is likely to be outstanding. That amount, plus interest to the end of the following month, is the final loan repayment amount.]   

i)If the cash flows after year 0 occur evenly over each year, what is the payback period for each project, and on this basis, which project would you prefer?

ii)Would the payback periods then be any different to your answer in i)? If so, what would the payback periods be?

iii)Sketch freehand the net present value (NPV) profiles for each investment on the same graph. Label both axes and the NPV profile for each investment.

iv)Calculate the internal rate of return (IRR) for each project and indicate them on the graph.

v)Calculate the exact crossover point and indicate it on the above graph.

vi)State which of the investments you would prefer, depending on the required rate of return (i.e., depending on the discount rate).

Diana Deall Ltd is considering the purchase of new technology costing $700,000, which it will fully finance with a fixed interest loan of 10% per annum, with the principal repaid at the end of 4 years.

Diana Deall Ltd’s cost of capital is 12%. The tax rate is 30%. Tax is paid in the year in which earnings are received.

(a)Calculate the net present value (NPV), that is, the net benefit or net loss in present value terms of the proposed purchase costs and the resultant incremental cash flows.

(b)Should the company purchase the technology? State clearly why or why not.

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My Assignment Help (2021) International Finance [Online]. Available from: https://myassignmenthelp.com/free-samples/fin700-international-finance/multiple-interest-rate-analysis.html
[Accessed 26 September 2022].

My Assignment Help. 'International Finance' (My Assignment Help, 2021) <https://myassignmenthelp.com/free-samples/fin700-international-finance/multiple-interest-rate-analysis.html> accessed 26 September 2022.

My Assignment Help. International Finance [Internet]. My Assignment Help. 2021 [cited 26 September 2022]. Available from: https://myassignmenthelp.com/free-samples/fin700-international-finance/multiple-interest-rate-analysis.html.


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