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Assessment – Corporate Finance

Name: ravindra chauhan

PGP: 20102512

Problem 1 Compulsory
A company is planning to set aside money to repay $100 million in bonds that will be coming due in 10 years.
If the appropriate discount rate is 9%,
a. how much money would the company need to set aside at the end of each year for the next 10 years to be able
to repay the bonds when they come due?
b. how would your answer change if the money were set aside at the beginning of each year?

Solution 1
a. Money to be set aside at the end of each year 6.58 million
b. Money to be set aside at the beginning of each year 6.04 million

Problem 2
You are analysing a project with a 5 year life time with the following characteristics:
• The initial investment in the project will be $20 million
• The project will generate profit before taxes of $7 million each year
• The depreciation will amount to $3 million each year and salvage value will be equal to the remainin
value at the end of 5 years.
• The tax rate is 35%.
If the firm faced a cost of capital of 13%, should the firm accept the project?

Solution 2
NPV of the project is
Hence the firm should accept/rejectthe project

OR
Problem 2
Citibank has given a loan of Rs 30,000 for a LCD TV to Mr. Suresh Jain though his credit card. The inte
rate they are charging him is 16.50% per annum. Mr.Suresh Jain has to repay his loan within next 6 m
You are an citibank employee and you need to prepare and send him the loan ammortization schedul
Solution

Loan amount -30000

rate 16.50%

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Duration 6 months

LOAN AMORTISATION SCHEDULE

Rate/month 1.38%
PMT/EMI 5243.36

period opening balance

EMI/PMT interest paid principal paid Ending balance
1 30000 5243.36 412.5 4830.86 25169.14
2 25169.14 5243.36 346.08 4897.29 20271.85
3 20271.85 5243.36 278.74 4964.63 15307.22
4 15307.22 5243.36 210.47 5032.89 10274.34
5 10274.34 5243.36 141.27 5102.09 5172.24
6 5172.24 5243.36 71.12 5172.24 0
TOTAL= 30000

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Marks (5 + 5)

FV -100
period 10
rate 9.00%

Marks 10

aining book

Marks 10
interest
6 months.
edule.

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