Question 4                                                                            25 Marks

Jimmy Reynolds is considering investing R12,000 in a project with the following cash revenues and expenses:

   Revenue    Expenses

Year 1    R20,000    R18,000

Year 2    R22,000    R19,000

Year 3    R22,000    R20,000

Year 4    R22,000    R17,000

Year 5 R25,000 R17,000

Jimmy requires a minimum rate of return of 8%.

A. Calculate the net cash inflows in each of the 5 years.

B. What is the payback period?

C. What is the net present value of the investment?

The Jumbo Jamboree Corp. plans to close its business over the next five years. They plan, however, to maintain their annual dividends to their loyal shareholders. They plan to play the coming year’s dividend of $2.50, and reduce the dividend to $2.00 for the second year, $1.50 for the third year, $1.00 for the fourth year, and $.50 for the fifth year. The expected market selling price of the stock at the end of the fifth year is expected to be $1.00 per share. If investors require a 12% return on their investment, what is the intrinsic value of the stock ?

Kiewitt is considering a project opportunity that requires a lump sum of initial investment (cash outflow) of $604.02 today. This project is expected to generate cash inflows of $150 in year 1, $Y in year 2 (due to uncertainty), $250 in year 3 and $300 in year 4. If Kiewitt requires 11% annual return for this project, what would be the minimum expected cash flow in year 2 (what is Y)?

A. $88.65

B. $109

C. $200

D. $275

E. $515

You are choosing between two projects. The cash flows for the projects are given in the following table​ ($ million):

a. What are the IRRs of the two​ projects?

b. If your discount rate is

5.1%​,

what are the

NPVs

of the two​ projects?

c. Why do IRR and NPV rank the two projects​ differently?

(Compound annuity) What is the accumulated sum of each of the following streams of payments?

a. $520 a year for 10 years compounded annually at 10 percent.

b. $112 a year for 8 years compounded annually at 8 percent.

c. $34 a year for 13 years compounded annually at 11 percent.

d. $28 a year for 4 years compounded annually at 5 percent.

a. What is the accumulated sum of $520 a year for 10 years compounded annually at 10 percent? $______ (Round to the nearest cent)

Building a bridge costs $2,000,000,000. and takes 2 years, of this cost, $800 million would be spent in year 1, and $1.2 billion in year 2. The bridge yields no benefits during its construction. but starting in year 3, It generates $300 million in benefits a year and costs $100 million a year to maintain. The bridge will last forever. The discount rate is r=0.05. Is this bridge worth building?

Please provide detail explanation ( not in handwriting form which I may not recognize it )

A 30-year corporate bond has a face value of $1,000 and a coupon rate of 6% paid annually. At the end of year 12 the Yield to Maturity is 8%. a. How much money will the holder of the bond receive at the end of year 30? b. What is the bond’s price at the end of year 12? c. What will the bond’s interest payment be at the end of year 12? d. If the Yield to Maturity later decreases from 8% to 5%, will the bond sell at a discount, premium, or par value?

Crich Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the estimated direct labor-hours were 21,800 hours and the total estimated manufacturing overhead was $497,040. At the end of the year, actual direct labor-hours for the year were 21,500 hours and the actual manufacturing overhead for the year was $492,040. Overhead at the end of the year was: (Do not round your intermediate calculations.)

A) $6,840 overapplied

B) $6,840 underapplied

C) $1,840 underapplied

D) $1,840 overapplied

A basic arm is made for $200000 at an initial interest rate of 6 percent for 30 years with an annual reset date. The borrower believes that the interest rate at the beginning of year 2 will increase to 7 percent.

(a) Assuming that a fully amortizing loan is made, what will the monthly payments be during year 1?

(b) Based on (a), what will the loan balance be at the end of year 1?

(c) Given that the interest rate is expected to be 7 percent at the beginning of year 2, what will the monthly payments be during year 2?