Page #

Maximum Marks on Page

10

7/8

11

10

11

12

13

Total Marks

70

Marks Awarded

1. (5 marks)
a. Revenues
$15 m

1 or 0 mark

b. Earnings
= 4.42 m

1 or 0 mark

c. Receivables
$10.1 m

1 or 0 mark

d. Inventory
- $8.2 m

1 or 0 mark
must indicate decrease or show a minus sign

e. Cash
$4.9 m
2. (5 marks)
Risk-free
$ 95
Bond
Market
Index

$ 84

1 or 0 mark

100

100

$ 100

5.263% or $5

80

120

$ 94

11.905% or $10

Security W

75

100

Security S

20

100

$ 65
$ 35

- 13.33% or $-10
75.000% or $15

mark per bolded cell; security Ws return must be a negative; no carry forwards

3. (2 marks
10

1.20
r = 1 +
1 = 159.3742%

12

2 marks
(1 off per error, mark to 4 dec.)

4. (2 marks)
r = (1.01)

365

1 = 3, 678.3434%

2 or 0 marks (mark to 4 dec.)

5. (3 marks)
3 months

1 month
.90

r = 1 +
1 4 = ( 52.0875% 4 ) = 208.3500%

3 marks (mark to 4 dec.)

(1 off per error)

6. (2 marks)

$400, 000 =

C
1
i 1
360
0.005 (1.005 )
2 marks

C = $2, 398.20
(1 off per error)

7. (7 marks).
a. (4 marks)

PVRemaining 300 payments =

5, 000
1

i 1
= 872, 604.98
300
.004 1.004

2 marks (-1 each error)

$872,604.98 x .004 = $3,490.42 interest for the month

1 mark (cfd loan

balance)

$5,000 - $3,490.42 = $1,509.58 principal paid down

1 mark (cfd interest)

b. (3 marks)

PVRemaining 299 payments =

5, 000
1
i 1
= 871, 095.40
.004 1.004 299

(1 mark or 0)

Total payments = 299 x $5,000 = $1,495,000

(1 mark or 0)

Interest paid = $1,495,000 - $871,095.40 = $623,904.60

(1 mark, cfd both)

8. (6 marks)
a.
(3 marks)

PV66 =

$50, 000
1
i 1
= $528, 341.07
.09 1.09 35

(3 marks,
1 for correct formula,
1 for years correct,
-1 for all other errors

b. (3 marks)

$100, 000 =

C
i 1.09 43 1.02 43
.09 .02
(3 marks,

C = $182.61

1 for correct formula,

1 for correct years,
-1 for all other errors

9. (6 marks)
a. (3 marks)

Price of bond =

$60 $60 + $1, 000

+
= $1, 000.539...
1.05
1.06 2

$1, 000.539... =

$60
1
$1, 000
i 1
2 +
YTM (1 + YTM ) (1 + YTM )2

2 marks (1 per term)

1 mark (cfd price)

YTM = 5.9706%

b.

(3 marks)

Yes, it is possible to have a different YTM.

(1 mark)

The Bonds could have different coupon rates.

(1 mark)

For example, Bond B could have a higher coupon rate than Bond A, resulting in
a lower YTM.
(1 mark for correct conclusion
detailed example)
(0 out of 3 if answer is no)

e.g. Bond B has a coupon rate of 10%

price = $1,074.23
YTM = 5.95%

10. (11 marks)

a.
(3 marks).

PVNWCs =

$2million $2million $4million

+
+
=
1.09
1.09 2
1.09 4

684, 521.53 = 1, 834, 862.39 1, 633, 359.99 + 2, 833, 700.84

(3 marks, 1 mark for each component)
(if final answer does not show as a negative or indicate decrease, -1 mark)

b. (1 mark)
$0 or no effect.

(1 or 0 marks)

c. (2 marks)

PV =

$10, 000 (1 .40 )

1
i 1
= $19, 438.32
4
.09
1.09

(2, -1 each error)

d. (3 marks)

PVCCA Tax Shields

.09

1+

$4million (.40 ) (.40 )

2 0.20 ( $4million ) (.40 ) (.40 ) 1
=
i

i
.09 + .40
1.09
.09 + .40
1.09 4

= $1,252,199.96 - $185,058.01 = $1,067,141.95

(3 marks, -1 each error)

e. (2 marks)

= $4million +

.20i$4million
1.09 4

= $4million + $566, 740.17

(2 marks, -1 each error)

= $ 3, 433, 259.83

11. (7 marks)

a. (2 marks)

2500 1000 500

300 4000
+
+
+
+
= $219.28
(2 marks)
2
3
4
1.12 1.12 1.12 1.12 5 1.12 6
( 1 mark for calcs, 1 for logical concl.)
Accept the project since NPV 0
NPV = 5, 000 +

b. (2 marks)

0 = 5, 000 +

2500

(1 + IRR )

1000

(1 + IRR )

500

(1 + IRR )

300

(1 + IRR )

4000

(1 + IRR )6

IRR = 13.2422%
Accept since the IRR 12%
(2 marks, 1 mark for
correct setup, 1 mark for logical concl.)
c. (1 mark)
NPV/initial resource consumed = $219.28 / $5000 = 0.044
(1 mark, cfd NPV if wrong in a.)
Since PI 0, accept the project.

d. (2 marks)
Payback is the length of time it takes to recoup your initial investment (1 mark).
PB = 5.175 years.

(1 mark)

12. (3 marks)
a. (1 mark)

PV =

$1000
$1000
$1000
+
+
2
1.020505 1.027606 1.048505 3

= 979.907... + 946.993... + 867.538...

= $2, 794.44
(1 mark or 0)
b. (2 marks)

$2, 794.44... =

$1000
1
i 1

r (1 + r )3
(2 marks, cfd pv from a., -1 each error)

r = 3.6348%

10

13. (4 marks)
Timeline (3 marks) must include
Clear labeling of dates AND cash flows
Time 6 months (or time 0) has cash outflow of = $89.50
Time 12 months (or time 6) has cash inflow of 5 x $10.50 = $52.50
Time 24 months (or time 18) has cash inflow of 3 x $12.75 = $38.25
Time 48 months (or time 42 has cash inflow of 2 x $18.95 = $37.90
(3 marks) (-1 wrong timing between cash flows, -1 wrong signs of cash flows, -1 wrong dollar
values)
Formula set up consistent with timeline, showing to solve for r as an effective rate per
month (1 mark)

0 = $89.50 +

$52.50

(1 + r )

$38.25

(1 + r )

18

$37.90

(1 + r )42

11

14. (3 marks)

0 = $50.1million +

$24.6million
1
i
IRR
1 + IRR

(2 marks if correct set up

including quadratic, 1 mark

max if treated as a perpetuity starting at time 1)

Simplification results in:

50.1r2 + 50.1r 24.6 = 0
r=36.082%

(1 mark correct answer)

12

15. (2 marks)
The view in North America is to maximize shareholder wealth. (1 mark)
However, actions that hurt other stakeholders may well translate into hurting the firms
cash flows, making an argument that the shareholder view converges with the stakeholder
view.
(1 mark)

16. (2 marks).
Security transactions in a normal market neither create nor destroy value on their own.
(1 mark)
Therefore, we can evaluate the NPV of an investment decision separately from the decision
the firm makes regarding how to finance the investment.
(1 mark)

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