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BFI 220 Cat II - Due On 13th Nov 2023
BFI 220 Cat II - Due On 13th Nov 2023
QUESTION ONE
f) The following information relates to the forecast returns of securities A and B and their
probabilities during the financial year ending 31ST December 2022:
QUESTION TWO
Hena is the Finance Director of a local company that specializes in processing steel. The company is planning
on an upgrade on one its major machines. The projected returns for the three machines are as follows:
Forecasted Returns:
Year 1 400,000 350,000 550,000
2 600,000 480,000 450,000
3 2,500,000 1,100,000 2,800,000
4 2,000,000 1,600,000 2,600,000
He has come to you for advice on which plant to buy. Evaluate the three projects using
a) Present Value
b) Net Present Value
c) Payback Period
d) Required Rate of Return
e) Profitability Index.
QUESTION THREE
Monicah is in permanent and stable employment. She is planning on taking a loan for putting up a house and
buying a car Two local banks have approached her to take a loan and she needs your help in deciding which
loan is affordable. The terms are as follows:
Bank A Bank B
Loan amount 3,500,000 3,500,000
Loan processing fee 0.75% (on the loan amount) 0.85% (on the loan amount)
Loan insurance 1.5 % (on the loan amount) 0.95% (on the loan amount)
Loan interest 12.25% 11.75%
Loan term 8 years 8 years
Using the Microsoft Excel spreadsheet, and for the two options, prepare a loan amortization schedule, showing:
a) The loan payment for each period (should be equal over the life of the loan)
b) The total interest paid for each option.
c) If Monicah makes a bullet payment at the beginning of year 5 of Sh. 800,000, will the repayment
reduce? By how much? Show all your workings.