Assignment 9 Estimating Cash Flows
Due date: November 20, 2011 Instruction: Please submit your assignment as an attachment by midnight on the due date
Solve all problems in the Excel file provided.
Problem 1 . Regency Integrated Chips (RIC), a large Nashvillebased technology company is evaluating a new project to manufacture a new chip. a. b. The project’s estimated economic life is 5 years. RIC’s marketing vicepresident believes that annual sales would be 30,000 units if the units were priced at $3,000 each. RIC expects no growth in unit sales, and it believes that the unit price will rise by 2 percent each year. c. The engineering department has reported that the project will require additional manufacturing space, and RIC currently has an option to purchase an existing building, at a cost of $10 million, which would meet this need. The building would be bought and paid for on December 31, 2008, and for depreciation purposes, it would fall into the MACRS 39 year class. The annual depreciation rate for the five years of economic life of the project would be: Year 1 1.3% Year 2 2.6% Year 3 2.6% Year 4 2.6% Year 5 2.6%
d.
The necessary equipment would be purchased and installed in late 2008, and it would also be paid for on December 31, 2008. The equipment would fall into the MACRS 5year class, and it would cost $5 million, including transportation and installation. The annual depreciation rate for the five years of economic life of the project would be: Year 1 Year 2 Year 3 Year 4 Year 5
20%
32%
19%
12%
11%
e.
At the end of the project, the building is expected to have a market value of $5 million and the equipment is expected to have a market value of $1 million.
f.
The production department has estimated that variable manufacturing costs would be $2000 per unit, and that fixed overhead costs, excluding depreciation would be $10 million a year. They expect variable costs to rise by 2 percent per year, and fixed costs to...
...appliances if you default on the loan. The loan is at the annual market rate of 5%, and the loan amount is $6,000 to be repaid monthly over 4 years.(ii) Renttobuy from the same store. The monthly rental is $125 for 48 months and then you pay $1,000 to own all the appliances. What is the net cost today of the cheapest option? (Enter just the number without the $ sign or a comma; round off decimals. Since this asks for a cost, you just enter the number without a negative sign.)
Question 9
(15 points) Two years ago, you purchased a $20,000 car, putting $4,000 down and borrowing the rest. Your loan was a 48month fixed rate loan at a stated rate of 6% per year.You paid a nonrefundable application fee of $100 at that time in cash. Interest rates have fallen during the last two years and a new bank now offers to refinance your car by lending you the balance due at a stated rate of 4% per year. You will use the proceeds of this loan to pay off the old loan. Suppose the new loan requires a $200 nonrefundable application fee. Given all this information, should you refinance? How much do you gain/lose if you do?
(no, lose15)
(yes, gain15)
(no, lose 29)
(no, lose 25)
(yes, gain 17)
(yes,gain 19)
Question 8
(15 points) Jingfei bought a house 10 years ago for $200,000. Her down payment on the house was the minimum required 10% at that time she financed the remainder with a 15year fixed...
...payments, if you can borrow or lend funds at a 7% interest rate. Assume the product sells for $100. (Do not round intermediate calculations. Round your answer to 2 decimal places.) 
Present value  $ 
b.  Calculate the payment net of discount. 
Payment net of discount  $ 
c.  Which is a better deal? 
 
  Pay the entire bill immediately 
 Installment plan 

2) Home loans typically involve “points,” which are fees charged by the lender. Each point charged means that the borrower must pay 1% of the loan amount as a fee. For example, if the loan is for $170,000 and 4 points are charged, the loan repayment schedule is calculated on a $170,000 loan but the net amount the borrower receives is only $163,200. What is the effective annual interest rate charged on such a loan assuming loan repayment occurs over 156 months? Assume the interest rate is .75% per month. (Do not round intermediate calculations. Round your answer to 2 decimal places.) 
Effective annual interest rate  % 
3) Suppose you take out a $1,000, 4year loan using addon interest with a quoted interest rate of 23.25% per year. 
a.  What will your monthly payments be? (Total payments are $1,000 + $1,000 × .2325 × 4 = $1,930.) (Do not round intermediate calculations. Round your answer to 2 decimal places.) 
Monthly payments  $ ...
...Chapter 5 : Interet rates
Page161
Interest rate quotes and adjustments
51. Your bank is offering you an account that will pay 20% interest in total for a twoyear deposit. Determine the equivalent discount rate for a period length of
a. Six months.
b. One year.
c. One month.
a. Since 6 months is [pic] of 2 years, using our rule [pic]
So the equivalent 6 month rate is 4.66%.
b. Since one year is half of 2 years [pic]
So the equivalent 1 year rate is 9.54%.
c. Since one month is [pic] of 2 years, using our rule [pic]
So the equivalent 1 month rate is 0.763%.
52. Which do you prefer: a bank account that pays 5% per year (EAR) for three years or
a. An account that pays 2[pic] every six months for three years?
b. An account that pays 7[pic] every 18 months for three years?
c. An account that pays [pic] per month for three years?
If you deposit $1 into a bank account that pays 5% per year for 3 years you will have [pic] after 3 years.
a. If the account pays [pic] per 6 months then you will have [pic] after 3 years, so you prefer [pic] every 6 months.
b. If the account pays [pic] per 18 months then you will have [pic] after 3 years, so you prefer 5% per year.
c. If the account pays [pic] per month then you will have [pic] after 3 years, so you prefer [pic] every month.
53. Many academic institutions offer a sabbatical...
...of each time period.
a. ordinary annuities; early annuities
b. late annuities; straight annuities
c. straight annuities; late annuities
d. annuities due; ordinary annuities
e. ordinary annuities; annuities due
PERPETUITY
c 5. An annuity stream where the payments occur forever is called a(n):
a. annuity due.
b. indemnity.
c. perpetuity.
d. amortized cash flow stream.
e. amortization table.
STATED INTEREST RATES
a 6. The interest rate expressed in terms of the interest payment made each period is called the _____ rate.
a. stated interest
b. compound interest
c. effective annual
d. periodic interest
e. daily interest
EFFECTIVE ANNUALRATE
c 7. The interest rate expressed as if it were compounded once per year is called the _____ rate.
a. stated interest
b. compound interest
c. effective annual
d. periodic interest
e. daily interest
ANNUAL PERCENTAGE RATE
b 8. The interest rate charged per period multiplied by the number of periods per year is called the _____ rate.
a. effective annual
b. annual percentage
c. periodic interest
d. compound interest
e. daily interest
PURE DISCOUNT LOAN
d 9. A loan where the borrower receives money today and repays a single lump sum at some time in the future is called...
...work. Please make sure you sign the Honor Pledge: I have neither given nor received any aid on this examination.________________
HELPFUL FORMULAS , , , , 1 , 1 , , 1 1 , , , , 1 1 , 1 1 1 1 1
1
1
2 ,
1. Given an interest rate of 7.3 percent per year, what is the value at date t = 7 of a perpetual stream of $2,100 annual payments that begins at date t = 15?
2100 0.073
1 1.073
17,567.03
2. You’ve just joined the investment banking firm of Dewey, Cheatum, Howe. They’ve offered you two different salary arrangements. You can have $90,000 per year for the next two years and or you can have $65,000 per year for the next two years, along with a $45,000 signing bonus today. The bonus is paid immediately, and the salary is paid at the end of each year. If the interest rate is 10%, compounded monthly, which do you prefer? 1 Option 1 90,000 1.1047 Option 2 45,000 65,000 1.1047 65,000 1.1047 157,102.4 90,000 1.1047 155,218.6 0.10 12 1 10.47%
3. Hughes Co. is growing quickly. Dividends are expected to grow at a 25 percent rate for the next three years, with the growth rate falling off to a constant 7 percent after that. If the required rate of return is 12%, and the company has just paid a $2.40 dividend, what is the current share price? 1 2 3 4 3 1.12 3.75 1.12 2.40 1.25 3 3 1.25 3.75 3.75 1.25 4.69 4.69 1.07 5.02 5.02 0.12...
...Annual Report 2012
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CHAIRMAN’S LETTER
To Our Shareholders
A
ALEX GORSKY
Chairman, Board of Directors, and
Chief Executive Officer
s I began to compose this letter, I realized how quickly my first year has
passed as Chief Executive Officer of Johnson & Johnson. It has been a
year with many rewarding moments, as well as some challenges. Though
a year of transition, we made solid progress on many fronts, including
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I am honored to be just the seventh CEO in our long history. This legacy of
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belief in the importance of our purpose held in common with us by our shareholders
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and dedicated people who work for Johnson & Johnson.
One challenge all of us in the world today face...
...attention with the following fact that as requirement of the BBA Programme I had visited many clients of some MFIs to collect the information regarding their interest rates of microfinance activities. Also I have collected a huge amount of secondary data, including videos & documentaries to understand whether the effective interest of the MFIs in Bangladesh are rational enough to provide the financial services to the poor people of Bangladesh.
I hope that you will accept my TERM PAPER considering its distinctiveness.
Yours truly,
Tareq Mahmood
ID : 05303134
BBA (Hons) 4th Year 2010
Department of Finance & Banking
University of Chittagong, Bangladesh.
(____________________)
Tareq Mahmood
Preface
Right from the start of microcredit programme in late 1970s, there has been a strong criticism of high interest rates charged by MFIs. In recent years, the criticism that Microfinance Institution (MFIs) charge its poor borrowers unreasonably high interest rate has intensified. Some people point out the unfortunate combination of profit seeking MFIs, minimal competition and vulnerable borrowers has opened up dangerous potential for exploiting the poor. In the backdrop of these concerns and criticisms, this study reviews the interest practice of MFIs in Bangladesh, examines the issue of interest rate from the perspectives of MFIs and the borrowing members.
In this paper it was chief endeavor to...
...An Essay
on
Interest Rate Behavior and Lending in Microfinance
Abstract: This essay analyzes factors which affect interest rate behavior and its subsequent impact on lending in microfinance. Here we have used regression model for our analysis. Furthermore comparison has been drawn among the different sources of loans outside Bangladesh. Here the experience of microfinance outside Bangladesh like India, South and SouthEast Asia, Latin America has been fully illustrated. This essay conducts analysis on the basis of the existing literatures on Microfinance.
Interest Rate Behavior
Determinants of interest rate of lending in Microfinance:
* to expand and improve business operation
* recruiting personnel ,
* marketing the services ,
* improving financial information system,
* constructing new offices
* Default
* Unwillingness to pay
* Poor
Management
* Economic recession
* Inability to pay
* Staff identifying
* Checking creditworthiness
* processing loan applications,
* disbursing loans, monitoring
* collecting repayments,
* costs of the space occupied,
* communications, transport,
* support staff,
* Grant
* Equity
* Foundation
* Trust
* Saving Account
We can observe that in MFI lending there is higher interest rate than the commercial bank’s lending rate. The interest rate charged here is higher as...