PowerPoint Presentation Financial management 1 Revision Future value (FV) Question You saved VND 10 million in 3 years with the compound interest of 7% per year How much will you receive at the end of[.]
Financial management Revision Future value (FV) Question: You saved VND 10 million in years with the compound interest of 7% per year How much will you receive at the end of the third year? Answer : FVn = P0 (1 + i)n Present value (PV) Question: The future value is $300 after one year at annum interest rate of 8%, the present value will be …? Answer: PV0 = FVn / (1 + i)n Compound interest Question: Loan present value is $200 and future value is $233 after years; value of interest rate will be …? Answer: FVn = P0 (1 + i)n Collect Basis Question: X company is looking for a 4-month term source of $100 million to supplement working capital A bank accepts loans at annual nominal rate of interest of 12% a year Calculate the annual effective rate of interest Answer: The annual effective rate of interest = (1 + [ i / m ] )m –1 Discount interest rate (discount basis) Question: X company is looking for a 4-month term source of $100 million to supplement working capital A bank accepts loans at discount interest rate of 12% a year Calculate the annual effective rate of interest Answer: Interest is deducted from the initial loan The annual effective rate of interest = (1+ Interest/ Usable funds)^m – Compensating Balances (deposits) Question: X company is looking for a 3-month term source of VND 100 million A bank accepts a loan with interest rate of 8% per year and deposits rate at 10% What is the annual effective rate of interest? Answer: Demand deposits maintained by a firm to compensate a bank Deposit = 10; Interest = 100 x 8%/4 = 2; Usable fund = 100 – 10 = 90 The annual effective rate of interest = (1+ Interest/ Usable funds)^m – Equal annual instalments Question: Mr X takes a loan of $100 million from HSBC Bank The rate of interest is 7% per annum The first installment will be paid at the end of year Determine the amount of equal annual installments if Mr X wishes to repay the amount in 10 installments Answer: PVA = R/(1 + i)1 + R/(1 + i)2 + + R/(1 + i)n PVA = 100; i = 7%, n = 10 The Baumol-Allais-Tobin (BAT) model Question: X Company has total demand for money is $4 billion The cost of transferring securities in cash is $270,000, the return on securities is 15% a year According to the Baumol-Allais-Tobin (BAT) optimal reserve model, the optimal reserve amount is …? Answer : The optimal reserve amount = = √2AF/ O The average accounts receivable (AR) and The average collection period (ACP) Question: Given an accounts receivable turnover of 10 times, annual credit sales of $500,000, the average accounts receivable is ? Question: Given an accounts receivable turnover of 10 times, annual credit sales of $500,000, the average collection period (360-day year) is? EOQ Model : size of the order Question: Annual demand is 4,000 units, spread evenly throughout the year The cost of placing and receiving an order is $30 The annual carrying cost is $12/unit What is the size of the order company should place with its supplier to minimize its inventory cost? Answer : O = $30; S= 4,000; C= $12 EOQ Model : the re-ordering point Question: X company has the total demand of materials is 3600 units a year The price is VND 300.000/unit The cost of placing and receiving an order is VND 100.000 The annual carrying cost is 5% of the price According to EOQ model what is the company's re-ordering point? Suppose that a year has 360 days, the time of purchase is days Answer : Oder point (OP) = Lead time x Daily usage A daily usage (3600/360) = 10 units Lead time = days OP = Lead time x Daily usage The commercial credit cost Question: A credit transaction has conditional payment of 2/10 net 50 In case the buyer pays on the 50th day of delivery; what is the commercial credit cost? Answer: Cost to Forgo a Discount : The commercial credit cost = % discount x (100% - % discount) 365 days (payment date - discount period) The Payback Period (PBP) Question: X company has determined that the after-tax cash flows (net cash flow) for the project will be $20,000; $24,000; $28,000; $28,000; and $30,000, respectively, for each of the Years through The initial cash outlay will be $60,000 The Payback Period (PBP) is ? Net cash flow Question: X company has determined that the before-tax cash flows (earning before tax) for the project will be $14,000; $18,000; $15,000; $18,000, respectively, for each of the Years through The initial cash outlay will be $60,000 Final salvage value of asset is $1,000 Assuming that the marginal tax rate equals 22% (not on salvage value of asset) The Company expects to depreciate its assets on a straight-line basis Net cash flow for year to is? The net present value (NPV) Question: X company has determined that the earning after tax for the project of buying a new machine will be VND 55; 45; 48; 45 million, respectively, for each of the Years through The initial investment is VND 400 million Final salvage value of the machine after year is VND million Assuming that the marginal tax rate equals 22% (not on salvage value of asset) The Company expects to depreciate its assets on a straight-line basis The cost of capital of the company is 12% per year What is the net present value (NPV) of this project? Cost of preferred stock Question : X company's $200 par value preferred stock just paid its $20 per share annual dividend The preferred stock has a current market price of $186 a share The component cost of preferred stock of X is ? Answer : kP = DP / P0 DP: Dividend per share = $20 P0: current market value per share = $186 The Weighted Average Cost of Capital (WACC) Question : If the weighting of equity in total capital is 3/5, that of debt is 2/5, the return on equity is 16% that of debt is 10% and the corporate tax rate is 25%, what is the Weighted Average Cost of Capital (WACC)? Answer : WACC = ∑ kx(Wx) = ki x Wi + ke x We