GROUP ASSIGNMENT COVER SHEET

STUDENT DETAILS

Student name: Nguyễn Đoàn Thiên Thảo Student ID 23005031

Student name: Lưu Trình Học Mẫn Student ID 23005460

Student name: Nguyễn Ngọc Anh Thư Student ID 23005105

Student name: Ngô Thị Thanh Tâm Student ID 22002545

Student name: Hà Nguyễn Quỳnh Giang Student ID B1112014630

UNIT AND TUTORIAL DETAILS

Unit name: Corporate Finance Unit number: CF-T324WSB-9

Tutorial/Lecture: Class day and time: Thursday: 12:00 - 15:30
Lecturer name: Từ Thị Kim Thoa
ASSIGNMENT DETAILS
Title: Take-home exercise 1
Length: Due date: 7/10/2024 Date submitted: 7/10/2024
Home campus (where you are enrolled): ISB - Western Sydney University

DECLARATION
I hold a copy of this assignment if the original is lost or damaged.
I hereby certify that no part of this assignment or product has been copied from any other student’s work or from any
other source except where due acknowledgement is made in the assignment.
I hereby certify that no part of this assignment or product has been submitted by me in another (previous or
current) assessment, except where appropriately referenced, and with prior permission from the Lecturer /
Tutor / Unit Coordinator for this unit.
No part of the assignment/product has been written/produced for me by any other person except where
collaboration has been authorised by the Lecturer / Tutor /Unit Coordinator concerned.
I am aware that this work will be reproduced and submitted to plagiarism detection software programs for the
purpose of detecting possible plagiarism (which may retain a copy on its database for future plagiarism
checking).

Student’s signature: Thảo

Student’s signature: Mẫn
Student’s signature: Thư
Student’s signature: Tâm
Student’s signature: Giang

Note: An examiner or lecturer has the right to not mark this assignment if the above declaration has not been signed.
Group 6
Peer review form:

Name Contributio Contribution Contribution Contribution Contributio

n (%) (%) (%) (%) n (%)

(Thu) (Thao) (Man) (Tam) (Giang)

Nguyen Ngoc Anh Thu 100(self) 100 100 100 100

Nguyễn Đoàn Thiên Thảo 100 100 (self) 100 100 100
Luu Trinh Hoc Man 100 100 100 (self) 100 100
Ngo Thi Thanh Tam 100 100 100 100 (self) 100
Ha Nguyen Quynh Giang 100 100 100 100 100 (self)
Average 100 100 100 100 100
Signature Thu Thao Man Tam Giang
 FIN201 - CORPORATE FINANCE

72-HOUR ASSIGNMENT #1

Note:

- This assignment covers Session 3 - Discounted Cash Flow Valuation (Chapter 4). - Cover Sheet
and Peer Review Form must be attached.
- Answers to the questions are typed in Microsoft Word, which is then converted into PDF for
submissions.

Question 1 (2 points)

First Great Bank pays 5.4 percent simple interest on its investment accounts. If First Exel Bank pays
interest on its accounts compounded annually, what rate should the bank set if it wants to match First Great
Bank over an investment horizon of 9 years? (rounding to 4 decimal places)

Question 2 (8 points)

You are saving for the college education of your two children. They are two years apart in age; one will
begin college 15 years from today and the other will begin 17 years from today. You estimate your oldest
child’s college expenses to be $80,000 per year, while the youngest's college expenses are estimated to be
$90,000; these expenses are payable at the beginning of each school year. The appropriate interest rate is
10 percent. How much money must you deposit in an account each year to fund your children’s education?
Your deposits begin one year from today (i.e, at the end of Year 1). You will make your last deposit when
your oldest child enters college. Assume four years of college for each child.
Question 3 (10 points)
You have recently won the super jackpot in the Vietnam Lottery. After reading the fine print, you discover
that you have the following two options:
• Option One: You will receive 31 annual payments of $300,000, with the first payment being delivered
today. The income will be taxed at a rate of 28 percent. Taxes will be withheld when the checks are
issued.
• Option Two: You will receive $810,000 now, and you will not have to pay taxes on this amount. In
addition, beginning one year from today, you will receive $250,000 each year for 30 years. The cash
flows from this annuity will be taxed at 28 percent.
a) Using a discount rate of 4.95 percent, which option should you select?
b) At what discount rate would you be indifferent between these two options? (rounding to 4 decimal
places)
 ______ END _____

Question 1:
Given: - First Great bank: r1= 5.4% (simple interest)
-First Exel bank: T=9 ( compounded annually) -> r2= ?

The formula to calculate the future value of the First Great Bank is: FV= PVx(1+r1xT)
The formula to calculate the future value of the First Exel bank: FV= PVx(1+r2/m)^mxT
-Because the First Exel Bank wants to match the First Great Bank over an investment horizon of 9
years so we consider the future value and the present value of the 2 banks are the same.

We got the equivalent as:

(1+r1xT)= (1+r2/m)^mxT
⇔ ( 1+ 0.054 x9) = (1+r2)^9
⇔ 1+ 0.486 = (1+r2)^9 ( then take the 9th root of both side. we have)
⇔ 1.045 = 1+ r2
⇔ r2= .045 = 4,5%
-The rate that the First Exel bank should set to match the First Great Bank over an
investment horizon of 9 years is 4,5%

Question 2:
We will use the formula to calculate the present value for both child:
𝐶
PV = 𝑡
(1 + 𝑟)
● PV: Present value.
● C: Cash flow per period.
+ For the oldest child: $80,000.
+ For the youngest child: $90,000.
● r: Interest rate (10% = 0,1)
● t: Time in years until the cash flow occurs.

1. For the oldest child (begin college in 15 years).

Annual college expenses = $80,000
This will occur for 4 years: Year 15, Year 16, Year 17, and Year 18.

Payment in year 15:

80,000
PV = 15 = $19,151.3940
(1 + 0,1)

Payment in year 16:

80,000
PV = 16 = $17,410.3309
(1 + 0,1)

Payment in year 17:

80,000
PV = 17 = $15.827.5735
(1 + 0,1)
Payment in year 18:

80,000
PV = 18 = $14,388.7032
(1 + 0,1)

Total present value for the oldest child:

19,151.3940 + 17,410.3309 + 15.827.5735 + 14,388.7032 = $66,778.0016 (1)

2. For the youngest child (begin college in 17 years).

Annual college expenses = $80,000
This will occur for 4 years: Year 17, Year 18, Year 19, and Year 20.
Payment in year 17:

90,000
PV = 17 = $17,806.0202
(1 + 0,1)

Payment in year 18:

90,000
PV = 18 = $16,187.2911
(1 + 0,1)

Payment in year 19:

90,000
PV = 19 = $14,715.7192
(1 + 0,1)

Payment in year 20:

90,000
PV = 20 = $13,377.9265
(1 + 0,1)

Total present value for the youngest child:

17,806.0202 + 16,187.2911 + 14,715.7192 + 13,377.9265 = $62,086.9570 (2)
Total present value for both child:
(1) + (2) = 66,778.0016 + 62,086.9570 = $128,864.9586
The money must deposit in an account each year to fund both children’s education:
−𝑡
1− (1 + 𝑟)
Use the formula: PV = C x ( 𝑟
)
● PV: $128,864.9586
● C: Annual cash flow.
● r: 0.1
● t: 15
 −𝑡
1− (1 + 𝑟)
PV = C x ( 𝑟
)
𝑃𝑉
≪≫ C = 1 − (1 + 𝑟 )
−𝑡
( 𝑟
)

128,864.9586
≪≫ C = 1 − (1 + 0.1 )
−15
( 0.1
)

≪≫ C = $16,942. 3628
=> The money must deposit in an account each year to fund both children’s education is
$16,942. 3628

Question 3:
a.
Option 1:
CF = $300,000
Tax rate = 28%
R = 4.95%

CF after tax = 300,000 x (1 - 0.28) = $216,000

−𝑇 −30
1−(1 + 𝑅) 1−(1+ 0.0495)
PV for annuity = CF x 𝑅
= 216,000 x 0.0495
= $3,339,458.78
⇒ PV1 = 216,000 + 3,339,458.78 = $3,555,458.78

Option 2:
CF = $250,000
Tax rate = 28%
R = 4.95%

CF after tax = 250,000 x (1 - 0.28) = $180,000

−𝑇 −30
1−(1 + 𝑅) 1−(1+ 0.0495)
PV for annuity = CF x 𝑅
= 180,000 x 0.0495
= $2,782,882.32
⇒ PV1 = 810,000 + 2,782,882.32 = $3,592,882.32

⇒ Option 2 should be chosen since its PV is higher than option 1

b. Set the PV1 and PV2 equal

PV1 = PV2
−30 −30
1−(1 + 𝑅) 1−(1 + 𝑅)
⇔ 216,000 + 216,000 x 𝑅
= 810,000 + 180,000 x 𝑅
Using the function shift solve on the calculator
⇒ R ≈ 0.0439
Therefore, at 4.39% discount rate, there will be indifference between 2 options