Financial Math Answers

Project costs Rs 180,000 and is expected to generate cash inflows as:

Year Cash Inflow ( Rs )

1 20000

2 24000

3 30000

4 36000

5 40000

a. Discuss the characteristics of long term capital budgeting decisions

b. calculate the Net Present Value of the project if the cost of capital is 12% and conclude.

Six years ago olwethu lent happy R150 000 on condition that he would pay her back in nine years time. The applicable interest rate is 15,5% per year,compounded monthly. Happy also owes olwethu another amount of R250 000 that he has to pay back six years from now for a loan that earned interest at 16,4% per year , compounded semi annually. Happy asks olwethu if he can settle his debts three years from now. The total amount that Happy will have to pay in three years is

Project costs Rs 180,000 and is expected to generate cash inflows as:

Year Cash Inflow ( Rs )

1 20000

2 24000

3 30000

4 36000

5 40000

a. Discuss the characteristics of long term capital budgeting decisions

b. calculate the Net Present Value of the project if the cost of capital is 12% and conclude.

For a business firm leverage is about the fixed operating cost and the fixed finance costs in the cost structure of the firm. For the given details, identify for which firm the degree of operating leverage and degree of financial leverage are higher and why so:

Firms Amrit Baayu

Sales (Rs.) 360000 750000

Variable cost p.u 20 150

Fixed cost (Rs.) 72000 140000

Output (units) 6000 1500

Interest 40000 80000

Consider a futures contract in which the current futures price is $81. The initial margin requirement is $8, and the maintenance margin requirement is $4. You go long 45 contracts and meet all margin calls but do not withdraw any excess margin. Assume that on the first day, the contract is established at the settlement price, so there is no mark-to-market gain or loss on that day.

i. Complete the table below and provide an explanation of any funds deposited Day Beginning Balance Funds Deposited Futures Price $ Price Change Gain/Loss Ending Balance

0 81 1 84 2 78 3 77 4 76 5 74 6 71 7 82 8 74 9 75 10 66 11 77 12 74 13 82 14 86 15 90 16 80 17 86

ii. Determine the price level that would trigger a margin call.

The treasurer of Company ABC expects to receive a cash inflow of $18,000,000 in 90 days. The treasurer expects short-term interest rates to fall during the next 90 days. To hedge against this risk, the treasurer decides to use an FRA that expires in 90 days and is based on 90-day LIBOR. The FRA is quoted at 6%. At expiration, LIBOR is 4.8%. Assume that the notional principal on the contract is $18,000,000.

i. Indicate whether the treasurer should take a long or short position to hedge interest rate risk.

ii. Using the appropriate terminology, identify the type of FRA used here.

iii. Calculate the gain or loss to Company ABC as a consequence of entering the FRA

The treasurer of Company ABC expects to receive a cash inflow of $18,000,000 in 90 days. The treasurer expects short-term interest rates to fall during the next 90 days. To hedge against this risk, the treasurer decides to use an FRA that expires in 90 days and is based on 90-day LIBOR. The FRA is quoted at 6%. At expiration, LIBOR is 4.8%. Assume that the notional principal on the contract is $18,000,000. i. Indicate whether the treasurer should take a long or short position to hedge interest rate risk. ii. Using the appropriate terminology, identify the type of FRA used here. iii. Calculate the gain or loss to Company ABC as a consequence of entering the FRA

3. A small home business set up with an investment of $ 10,000 for equipment. The business manufactures a product at a cost of br. 0.64 per unit. If the product sales for Br. 1.20 per unit how many units must be sold before the business breaks even?

4. A retail co. plans to work on a margin of 54% of retail price & to incur other Variable Cost of 4%. If is expected fixed cost of Br. 40,000.

i. Find the equation relating Total Cost to sales

ii. Find the profit if sales are Br. 80,000

iii. Find the breakeven revenue

iv. If profit is Br. 20,000 what should be the revenue level?

v. If you have any one item at a price of Br. 20/unit how do you convert the cost equation in terms of revenue in to a cost equation in terms of quantity?

At a sale, a TV which is priced at N$ 8000 is sold with an eight percent discount. What was the sale price of the TV?