[seanah]

Now when I passed my final exam, I would like to thank all Open Tuition team for all the support that I’ve receive from them. You’re doing really great thing guys!. Thank you from my heart. (BTW I got 61% thanks to OT mainly 🙂 )

[seanah]

jacqueline -no Practice Tests available for me. P5 is my final exam

[seanah]

Thank you:)

[seanah]

Thank you 🙂

[seanah]

Hi,

When forward rate is quoted as an adjustment to the spot rate:
1. substract the premium;
2. add a discount

eg. $/£
Spot: 1.9612 – 1.9618
3 M forward: 0.0012 – 0.0006 premium => 3 M forward 1,9600 – 1,9612

[seanah]

Hello again,

In my understanding:
10% loan – Payments are made every six months => equivalent of 5% every six months.
Loan is paid over 5 years so 10 equal payments.
PV of loan at time 0 is $320.000 and we are looking for 10 equal payments (in 10 periods) which include interests.
We can treat this as annuity at 5% over 10 periods:

X * 7.722 = $320,000
X = $320,000 / 7.722
X = $41,440

[seanah]

Hi,
It’s because tax is paid in arrears:

First you calculate sales using 5 yrs annuity: 100,000 × $16 × 3.696 = $5,913,600
than you calculate tax based on ALREADY discounted sales: $5,913,600 × 30% = $1,774,080
But this amount of tax must be additionaly multiplied by 1/(1+11%) = 0.901 (“moved back by one more year”) to take into account payment of tax in arrears. 1,774,080 x 0,901 = 1598,4

Alternative solution:

Sales: 100,000 × $16 × 3.696 = $5,913,600
Tax 1600 *30% = 480 – paid from year 2-6 so x 3,330 (4,231 annuity for 6 years – 0,901 – discount factor for 1 year) = 1598,4

[seanah]

Year 0 : (90)
Year 5: +90

[seanah]

Demand (units) 700,000 1,600,000 2,100,000 3,000,000

Variable cost ($/unit) 2.800 3.000 3.000 3.050

Inflated variable cost ($/unit)
(Inflated at 3% pa) 2.884 (2,8x 1.03) 3.183 (3 x 1,03^2) 3.278 (3x 1,03^3) 3.433 (3,05 x 1,03^4)

Variable cost ($000/year) 2,019 5,093 6,884 10,299

[seanah]

Thank you very much 🙂

[seanah]

I may be wrong but I’d do it like this:
0 1 2 3 4 5 -10 (annuity)
Investment (500) (800)
After-tax cash inflows 150 200 250 300
net Cash flows (500) (800) 150 200 250 300

Discount factor @ 14% 1 0,877 0,769 0,675 0,592 2,302 (5,216-2,914)

Discounted CF (500) (702) 115 135 148 691

NPV (14%) = (113) – NPV negative than project to be rejected based on it

Discount factor @ 5% 1 0,952 0,907 0,864 0,823 4,176

Discounted CF (500) (762) 136 173 206 1253
NPV (5%) = 506

IRR = 5%+ 506/(506–113)*(14%-5%)= 12,4% – Lower than cost of capital than project will not be accepted
Payback period: (500)+(800)+150+200+250+300+300=(100) after 6 years+ 100/300 =0,3333 => total 6,33(3) years

[Author]

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