Reference no: EM132400020
BPF 2213 - Introduction to Finance - Department of Business and Accounting - Muscat College
TOPIC : Time Value of Money
Stocks and Bonds - characteristics and valuation
Understanding Financial Statements
Question 1: Time Value of Money
Case Study 1- Proposed project investment at Muscat, Oman
FOR SALE
THE CHEAPEST PRICE COMMERCIAL RESIDENTIAL LAND ON THE HIGH
WAY BAUSHER
COMMERCIAL RESIDENTIAL LAND ON THE HIGHWAY BAUSHER OPPOSITE
THE BRIDGE OF HAYA NEAR OMAN OIL STATION
5000 SQUARE METRES
SALE PRICE: 3 MILLION OMR
INVESTMENT RETURN: 20,000 OMR PER MONTH
a. Compare the expected rate of return on the Bausher property investment from the seller's point of view with the average rate of return from an alternative investment in Oman.
b. Assume that an investor wants a particular rate of return per annum in perpetuity, what is the present value of the Bausher property?
c. Based on your analysis in (a) and (b), comment on the seller's claim that the property is "the cheapest price commercial residential land..."
d.
(i). Using Salalah Port Services Co. (S.A.O.G.)'s audited consolidated 2018 annual report, briefly comment on the changes in the company's cash flow. Analyse the future worth of the company's cash flow if the entire amount of the year-end cash and cash equivalent is deposited annually for 30 years.
(ii). Explain the term "annuity due". Evaluate the future worth of the same cash flow sum deposited annually for 30 years if you assume the investment to be annuity due?
e.
(i) The Times of Oman recently reported that 475 million OMR is to be set aside for Oman's first Medical City project. It could take a while before site acquisition and preparation, actual construction work and other fund disbursements start. Estimate the future value of half of this capital budget amount at the end of 5 years, if invested for the time being in a fixed deposit with a commercial bank in Muscat.
(ii) Show clearly and explain why there could be some difference in the estimates for the simple interest and the compound interest on the same amount.
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