Reference no: EM133046805

Questions -

Q1. A person owes $3000 now and $2000 in 4 months. After re-arrangement of payments, he agreed to pay $X in 6 months and $2X in 8 months from now. Determine the value of $X with j12 = 12% per annum.

Q2. A lot of land valued at $350,000 is sold for $150,000 deposits. The buyer agrees to pay the balance with interest at j12 = 9% p.a. by paying $5000 monthly as long as necessary with the first payment due 2 years from now.

(a) Determine the number of full payments needed and the size of the concluding payment 1 month after the last $5000 payment.

(b) Determine the monthly payment needed to pay off the balance by 36 equal payments if the 1st payment is 1 year from now and interest is atj12 =12% p.a.

Q3. Nishi Trading Ltd is deciding whether to proceed with Project X. The cost would be $9 million in Year 0. There is a 50% chance that X would be hugely successful and would generate annual after-tax cash flows of $6 million per year during Years 1, 2, and 3. However, there is a 50% chance that X would be less successful and would generate only $1 million per year for the 3 years. If Project Xis hugely successful, it would open the door to another investment, Project Y, which would require an outlay of $10 million at the end of Year 2. Project Y would then be sold to another company at a price of $20 million at the end ofYear 3. Nishi Trading Ltd WACC is 11%.

(a) If the company does not consider real options, what is Project X's NPV?

(b) What is Project X's NPV considering the growth option?

(c) How valuable is the growth option?

Q4. Suppose that USP decides to issue $5m in bonds to construct a Business Research Centre. The University is required to set up a sinking fund where it will need to deposit a fixed amount at the end of every end of 6 months paying 20% compounded semi-annually. At the end of the 10 years, the bond obligation will be retired. The mandatory deposit required in the fund for each half- year is?