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## BUACC5936 Financial Management

• Attempt all questions and show all workings

### –   Questions 1 & 2 of this assignment MUST be completed on an Excel Spreadsheet.

A young newly married couple wish to purchase a unit house in a remote area priced at

\$190,000. They want to borrow the entire amount and repay this amount in full plus interest over the next 20 years. You can offer them a mortgage for the full amount at an interest rate of 17% (sounds like extortion to me) and calls for equal annual instalment payments at the end of each of the 20 years.

Required: (a) Calculate the amount of the annual payment? (b) Create and complete the amortization

ABC Corporation is experiencing rapid growth. Dividends are expected to grow at 25% per year for the next three years and then grow at 5% per year for ever. If the required return on the share is 10% and the share currently sells for \$30.

### What is required of you:

Calculate the projected dividend for the coming year? (Hint: calculate D0 before attempting to determine D1)

Consider a bond with face value of \$1000, a coupon rate of 8% (paid annually), and ten years to maturity.

### What is required of you:

1. What is the price of this bond if the required rate of return (r) is 18 percent?
2. What is the price if r increases to 20 percent? By what percentage did the price of the bond change?
3. What is the price if r is five percent? If r increases to seven percent, what is the percentage change in price?
4. From your answers in a to c, what can you say about relative price volatility of a bond in high compared to low interest rate environments.

SYPETCO Ltd is a leading company in Australia and you the below details relating to the capital structure of the company.

1. Calculate the cost associated with each new source of finance. The firm has no retained earnings available.
1. Calculate the WACC given the existing weights

The financial controller does not believe the existing capital structure weights are appropriate to minimise the firm’s cost of capital in the medium term and believes they should be as follows

### c)       What impact do these new weights have on the WACC?

The firm is now (in 2021) considering the following investment opportunity for the period 2022-2029.

Data is as follows

Sales estimates for next 8 years starting from 2022

### d)      Calculate the Net Present Value, Internal Rate of Return and Payback Period

The financial controller is considering the use of the Capital Asset Pricing Model as a surrogate discount factor. The risk-free rate is 5 percent. The information in the table below has been used by company management in calculating the stock beta value which is 1.151 and the expected return on the stock which is 12.5%.

### e)       Calculate the CAPM

• Explain why this figure may differ from that calculated above (i.e. Cost of equity.