Return- Expected (Return- Expected (Return- Expected

Return(%) Expected Return Probability

Return Return)^2 Return)^2 *Probability
40.00% 12.50% 27.50% 7.56% 10.00% 0.76%
30.00% 12.50% 17.50% 3.06% 20.00% 0.61%
15.00% 12.50% 2.50% 0.06% 30.00% 0.02%
2.00% 12.50% -10.50% 1.10% 20.00% 0.22%
-12.00% 12.50% -24.50% 6.00% 20.00% 1.20%
2.81%

Ans
Expected Return= 12.50%
Standard Deviation= 16.76%

Since I did not have the growth rate after the third year . then use the growth rate of 22 percent which is greater than the required return of 20 percent.

Dividend $1.75
Rate of return 20
Frequency (g) PV
Growth Rate 1 35% 1 $2.36 $1.97
Growth Rate 2 28% 1 $3.02 $2.10
Growth Rate 3 22% 1 $3.69 $2.14
Growth Rate ( to infinity) 1 $3.69

P3= $(184.46) -106.75

P0= $(100.55)

Year Cash flows Disconted cash flows Cumulative Cash Flows

0 -1250000 -1250000.00 (1,250,000.00)
1 375000 340909.09 (909,090.91)
2 375000 309917.36 (599,173.55)
3 375000 281743.05 (317,430.50)
4 375000 256130.05 (61,300.46)
5 375000 232845.50 171,545.04
Cf0= (2750000)
co1= 612335
f01= 1
co2=891005
fo2=1
co3=1132000
fo3=1
co4=1412500
fo4=1
I=20%
cpt IRR= 15.13% or 15%

This project should not be accepted since the IRR is less than the cost of capital.

Revenues 12,000,000
Less: Cash Operating Expenses 8,000,000
Less: Depreciation and amortization 1,500,000
EBIT 2,500,000
Less: Taxes 30% 750,000
Net profit after taxes 2,800,000
Plus: Depreciation 1,500,000
Operating Cash Flow 4,300,000
Less Capital expenditure -700,000
Less:Additional operating capital (500,000)
Free Cash Flow (1,200,000) 3,800,000
Cash flow associated with investment is - 0.7

Rf+(bj*(rm-rf))
9+1.4*(5-9)
= 16
ANS = After cost is 16%
$1824214/.66= $2763961+$1241790=$4005751

$5174366-$4005751=$1168615

Ans= $1168615

C+AR+I-AP-A
10000+20000+30000-40000-30000

Ans=
Change in net working capital would be a decrease of $10000

n= 30
r= 10.00%
PV 30 periods 9.426914
PMT 15000

Therefore, present value= $141,404= 15000 x 9.426914

Answer: $141,404

n= 20
r= 8.00%
FVIF 20 periods, 8% rate 4.660957
Amount required in 20 years = $141,404
Therefore, amount to be invested now= $30,338

An increase in the interest rate will lower the amount required at the end of 20 years (calculated in part a). because the present value of $20,000 required for 30
years will be lower at a higher discount rate.
An increase in the interest rate will lower the amount required now (claculated in part b). This is because the future value to be invested now would be greater
at a higher interest rate; thus a lesser amount is required.
Periods Beginning Balance Interest Payment Principal Ending Balance
1 $25,000.00 $3,000.00 $10,408.72 $7,408.72 $17,591.28
2 $17,591.28 $2,110.95 $10,408.72 $8,297.77 $9,293.50
3 $9,293.50 $1,115.22 $10,408.72 $9,293.50 $0.00
a)
$10,408.72
b)
$5,971.77
c)
$8,173.50

d) The interest portion of each portion declines with the passage of time because interest is on a reducing balance. Hence, as the balance declines, the interest
would also decline

Periods Beginning Balance Interest Payment Principal PrePayments Ending Balance

1 $25,000.00 $3,000.00 $10,408.72 $7,408.72 $1,000.00 $16,591.28
2 $16,591.28 $1,990.95 $10,408.72 $8,417.77 $8,173.50
3 $8,173.50 $980.82 $9,154.32 $8,173.50 $0.00

e)
$9,154.32