Question 1 –

Effective Rate of Interest:

i=(1+rm)m−1
i=(1+0.0512)12−1
i=0.051162
I=i×100
i=5.1162%
Effective rate of interest monthly = 5.1162/12 = 0.417% per month

b) By using nest egg : 10,715,776 DKK

c) By using Nest Egg: 15,934 DKK per month required
d) By using Nest Egg: 11,534 DKK per month required
e) Compound interest is the addition of interest to the principal sum of a loan or deposit, or in
other words,interest on interest. It is the result of reinvesting interest, rather than paying it out, so
that interest in the next period is then earned on the principal sum plus previously-
accumulated interest same formula used to calculate the above figures. The time
value of money (TVM) is the idea thatmoney available at the present time is worth more than the
same amount in the future due to its potential earning capacity. This core principle of finance
holds that, provided money can earn interest, any amount of money is worth more the sooner it is
received.
Question 2 –
A) Expected Cash flow
Probabilitie Expected Cash
s Cash flow flow
$
0.2 (200,000,000) $ (40,000,000)
$
0.5 400,000,000 $ 200,000,000
$
0.3 500,000,000 $ 150,000,000

Total Expected Cash flow = $ 310,000,000 – 100,000,000 = 210,000,000

B) NPV = Discounting Rate * Expected Cash flow = 0.909*(210,000,000)
= $ 190,890,000
C) Yes, the project is viable because the net present value of the project is positive. Hence,
increase the overall worth of the company. The project is acceptable.
D) The minimum amount for 20% should be the 20% of the net present value which is
equals to $190,890,000*20% = $ 38,178,000
E) There are some limitation of using WACC in this investments
1. It assumed that there is no change in the capital structure of the company if we
take this project
2. It also assumed that there is no change in the risk of the project.
Question 3 –
A) The formula used to calculate the Fair Share price = D(1+g)/(R-g)
5(1+0)/10% = 50 DKK
D= Dividend
g = Growth Rate
r= Rate of return required.
B) The formula used to calculate the Fair Share price = D(1+g)/(R-g)
5(1+0.01)/(10%-1%) = 56.11 DKK
C) I would buy the stock at (b) because the stock price is 52 DKK is undervalued, It would
be profitable to do so. the market may be undervaluing the stock.
D) Stock Price = 5/(10%-5%)= 100 DKK , Yes! I would defiantly but the stock because the
market is still undervaluing the stocks.
Unsystematic risk, otherwise called "particular risk," "diversifiable risk" or "lingering
danger," is the kind of instability that accompanies the organization or industry you put
resources into. Unsystematic risk can be diminished through broadening. For instance,
news that is particular to few stocks, for example, a sudden strike by the workers of an
organization you have partakes in, is thought to be unsystematic risk.

Systematic risk, otherwise called "showcase risk" or "un-diversifiable risk", is the

instability characteristic to the whole market or whole market portion. Likewise alluded
to as instability, orderly risk comprises of the everyday variances in a stock's cost.
Unpredictability is a measure of risk since it alludes to the conduct, or "personality," of
your venture as opposed to the purpose behind this conduct. Since market development is
the motivation behind why individuals can profit from stocks, unpredictability is
fundamental for returns, and the more shaky the speculation the more shot there is that it
will encounter an emotional alter in either course.

The required rate of return (RRR) is the base yearly rate earned by a speculation that will
instigate people or organizations to place cash into a specific security or venture. The
RRR is utilized as a part of both value valuation and in corporate back

Question 4 –
a) By using CAPM formula to calculate the cost of equity we will use the beta value
of 2. Beta is a measure of the volatility, or systematic risk, of a security or a
portfolio in comparison to the market as a whole. Beta is used in the capital asset
pricing model (CAPM), which calculates the expected return of an asset based
on its betaand expected market returns
b) CAPM = Rf + B(Rm – Rf)
CAPM = 1+2(5-1) = 9%
c) WACC = = rD (1- Tc )*( D / V )+ rE *( E / V )
= 0.05(1-0.3)*0.50 + 0.09*(0.50)
= 6.25%
d) Total Value = (10,000,000,00)(1-0.3)/0.045 = 15555555556
The Value of Debt = 7,777,777,777.78
The Value of Equity = 7,777,777,777.78
e) Total Value only on Equity = 15555555556