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    Assignment Pertemuan 3: I RF M RF I

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    nilanovysw
    The document contains solutions to finance problems related to topics like capital budgeting techniques, cost of capital, project valuation. Several problems calculate rates of return, net present values and weights average cost of capital for projects and companies. Break even analysis and capital structure is also discussed in some of the solutions.

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    Assignment Pertemuan 3: I RF M RF I

    Uploaded by

    nilanovysw
    19 views4 pages
    The document contains solutions to finance problems related to topics like capital budgeting techniques, cost of capital, project valuation. Several problems calculate rates of return, net present values and weights average cost of capital for projects and companies. Break even analysis and capital structure is also discussed in some of the solutions.

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    FM pertemuan 3 dan 4

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    The document contains solutions to finance problems related to topics like capital budgeting techniques, cost of capital, project valuation. Several problems calculate rates of return, net present values and weights average cost of capital for projects and companies. Break even analysis and capital structure is also discussed in some of the solutions.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    19 views4 pages

    Assignment Pertemuan 3: I RF M RF I

    Uploaded by

    nilanovysw
    The document contains solutions to finance problems related to topics like capital budgeting techniques, cost of capital, project valuation. Several problems calculate rates of return, net present values and weights average cost of capital for projects and companies. Break even analysis and capital structure is also discussed in some of the solutions.

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    Assignment Pertemuan 3

    Problem 6-7
    a. ri = rRF + (rM - rRF)bi = 9% + (14% - 9%)1.3 = 15.5%.

    b. 1. If rRF increases to 10%, rM = 15%

    ri = rRF + (rM - rRF)bi = 10% + (15% - 10%)1.3 = 16.5%.

    2. If rRF decreases to 8%, rM = 13%

    ri = rRF + (rM - rRF)bi = 8% + (13% - 8%)1.3 = 14.5%

    c. 1. If rM increases to 16%

    ri = rRF + (rM - rRF)bi = 9% + (16% - 9%)1.3 = 18.1%.

    2. If rM decreases to 13%:

    ri = rRF + (rM - rRF)bi = 9% + (13% - 9%)1.3 = 14.2%.

    Problem 6-12
    a. Average ¯A = 11.30 and ¯B = 11.30
    b. Portfolio 2006 : -16.25%
    ¯ Portfolio 2007 : 27.40%
    ¯ Portfolio 2008 : 22.75%
    ¯ Portfolio 2009 : -4.05%
    ¯ Portfolio 2010 : 26.65%
    Average ¯ Portfolio : 11.30%
    c. Std Dev A = 20.79, B = 20.78 and Portfolio = 20.13
    d. CV A = 1.84, B = 1.84 and Portfolio = 1.78
    e. Since the portfolio offers the same expected return but with less risk. Risk-
    averse investor would choose the portfolio over either Stock A or Stock B
    alone.

    Problem 7-1
    If D0 = $1.50; g1-3 = 5%; gn = 10%
    D1 = D0(1 + g1) = $1.50(1.05) = $1.5750.
    D2 = D0(1 + g1)(1 + g2) = $1.50(1.05)2 = $1.6538.
    D3 = D0(1 + g1)(1 + g2)(1 + g3) = $1.50(1.05)3 = $1.7364.
    D4 = D0(1 + g1)(1 + g2)(1 + g3)(1 + gn) = $1.50(1.05)3(1.10) = $1.9101.
    D5 = D0(1 + g1)(1 + g2)(1 + g3)(1 + gn)2 = $1.50(1.05)3(1.10)2 = $2.1011.
    Problem 7-11
    If D0 = $1, rS = 7% + 6% = 13%, g1 = 50%, g2 = 25%, gn = 6%

    0 rs = 13% 1 2 3 4
    | | | | |
    g1 = 50% 1.50 g2 = 25% 1.875 gn = 6% 1.9875
    1.327 + 28.393 = 1.9875/(0.13 – 0.06)
    = 30.268
    23.704
    $25.03

    The value per share of firm’s stock = $25.03

    Problem 9-6
    CAPM, rs = rRF + bi(RPM) = 0.06 + 0.8(0.055) = 10.4%.

    Problem 9-7
    If 30% Debt; 5% Preferred Stock; 65% Equity; rd = 6%; T = 40%; rps = 5.8%; rs = 12%.
    WACC = (wd)(rd)(1 - T) + (wps)(rps) + (ws)(rs)
    WACC = 0.30(0.06)(1-0.40) + 0.05(0.058) + 0.65(0.12) = 9.17%.

    Problem 9-15
    a. Common equity: 0.5($30,000,000) = $15,000,000.
    b.
    After-Tax
    Percent  Cost = Product
    Debt 0.50 4.8%* 2.4%
    Common equity 0.50 12.0 6.0
    WACC = 8.4%x8%(1 - T) = 8%(0.6) = 4.8%.
    c. rs and the WACC will increase due to the flotation costs of new equity.

    Assigment Pertemuan 4
    Problems 10-13

    a.
    r NPVA NPVB
    0.0% $890 $399
    10.0 283 179
    12.0 200 146
    18.1 0 62
    20.0 (49) 41
    24.0 (138) 0
    30.0 (238) (51)

    b. IRRA = 18.1% and IRRB = 24.0%.


    c. If r = 10%, NPV Project A ($283.34) > NPV Project B ($178.60), hence Project A is
    selected.
    If r = 17%, NPV Project B ($75.95) > NPV Project A ($31.05), hence Project B is
    selected.
    d. If r = 10%, PV costs = $300 + $387/(1.10) 1 + $193/(1.10)2 + $100/(1.10)3 +
    $180/(1.10)7 = $978.82.
    TV inflows = $600(1.10)3 + $600(1.10)2 + $850(1.10)1 = $2,459.60.
    $978.82 = $2,459.60(1 + MIRR)7
    MIRRA = 14.07%.
    $405 = $1,137.28(1 + MIRR)7
    MIRRB = 15.89%.
    At r = 17%,
    MIRRA = 17.57%.
    MIRRB = 19.91%.
    e.
    Project ∆ =
    Year CFA – CFB
    0 $105
    1 (521)
    2 (327)
    3 (234)
    4 466
    5 466
    6 716
    7 (180)

    IRR∆ = Crossover rate = 14.53%.


    Projects A and B are mutually exclusive,
    Because of the sign changes and the size of the cash flows, Project ∆ has multiple
    IRRs. Thus, a calculator’s IRR function will not work. One could use the trial and
    error method of entering different discount rates until NPV = $0. However, an HP
    can be "tricked" into giving the roots. After you have keyed Project Delta’s cash
    flows into the CFj register of an HP-10B, you will see an "Error-Soln" message. Now
    enter 10  STO  IRR/YR and the 14.53% IRR is found. Then enter 100  STO 
    IRR/YR to obtain IRR = 456.22%. Similarly, Excel can also be used.

    Problem 11-1
    a. Equipment $ 9,000,000
    NWC Investment 3,000,000
    Initial investment outlay $12,000,000
    b. No, last year’s $50,000 expenditure is a sunk cost hence not be included in the
    analysis.
    c. The potential sale of the building represents an opportunity cost of conducting the project in
    that building. Therefore, the possible after-tax sale price must be charged against the
    project as a cost.

    Problem 11-2
    Operating Cash Flows: t = 1
    Sales revenues $10,000,000
    Operating costs 7,000,000
    Depreciation 2,000,000
    Operating income before taxes $ 1,000,000
    Taxes (40%) 400,000
    Operating income after taxes $ 600,000
    Add back depreciation 2,000,000
    Operating cash flow $ 2,600,000

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