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FM End
FM End
c)
9.1
8.1
assumed
a) return 10 Overall return Probability ER
High 100 1000 0.3 300
Low 110 1100 0.4 440
Stag 120 1200 0.2 240
Recess 140 1400 0.1 140
Total 1120
4.03112887415 7.33484832836
Q1 n (years) 8
C 12%
M 100
r or Yeild 14%
Q2 Settlement 1/1/2022
(Solved example 7.4) Maturity 12/30/2031
C 12%
Redemption/par value 1000
r/yeild 13%
Frequency 1
Basis 3
Solved Examples
Q) 7.1 M ₹ 100.00
C 12%
n 5
pmt 12
r 15%
Yield @ 13% 1035.172 Since this value is lower than 1050, we will try a new value of r (1
Yield @12% 1072.10
YTM 12.60%
P ( bond Value) ₹ 93.29 Remember for semi annual , Rate, pmt and C is divided by 2 where
Settlement
Maturity
50, we will try a new value of r (13% is assumed) so we'll take a lower value for r for a greater value of YTM
pmt and C is divided by 2 where as n is multiplied by 2
Div, PV Rate
2.05 15% 1.15
2.11
2.16
2.22
2.16
2.10
2.05
1.99
16.84 Total
6.1 A 5000
r 9%
n 75
FV ₹ 3,205,954.5
6.3 r 16%
CompoundiQuarterly
6.4 A 5000
r 14%
n 15
Fv ₹ 219,212.07
6.5 FV 44650
n 5
A 6000
Rate 20%
6.6 FV 1000000
n 60
r 10%
PV ₹ 3,284.3
6.7 A 10000
n 12 7
r 14%
PV ₹ 22,620.64
6.8 r 14%
Year 0 1 2 3
CFs 5000 6000 8000 9000
NPV` ₹ 23,886.21
6.9 PV 200000
n 15
r 10%
A ₹ 26,294.76
#6.10 FV 1000000
A 80,000
r 14%
NPER 7.72047872039122
6.11 PV 80000
r 1.25%
n 12
PMT(A) ₹ 7,221
Problems
6.1 n 5 5 5
pv 1000 1000 1000
r 8% 10% 15%
v
FV ₹ 1,469.33 ₹ 1,610.51 ₹ 2,011.36
6.4 A 2000
n 5
A 3000
n 10
r 10%
FV n=5 12210.20
FV n=10 ₹ 31,670.11
FV ₹ 47,812.27
TFV = 79482.39
4
8000
Remaining Balance
₹ 73,779
₹ 67,481 Cost Saving Proposal (hardware unit)
₹ 61,104 Cost 46.35
₹ 54,647 Loan amou 46.35 lakhs
₹ 48,109 loan perio 8 years
₹ 41,490 loan rate 18%
₹ 34,788 Annual Inta 11.37
₹ 28,002
₹ 21,132
₹ 14,175
₹ 7,132
₹0
Estimated I 39.6
Est life 10
Annual after-tax cash flows
Years 1-4 7.6
Years 5-10 8.5
Depreciation
Machine sal 50
Depreciatio 25
Method WDV
Year Cash Flow PVF@12%
1 7.6 0.8929
2 7.6 0.7972
3 7.6 0.7118
4 7.6 0.6355
5 8.5 0.5674
6 8.5 0.5066
7 8.5 0.4523
8 8.5 0.4039
9 8.5 0.3606
10 8.5 0.3220
Depreciation
B/s BV of assetsDepr
Yr0 39.60 9.90
Yr1 29.70 7.43
Yr2 22.28 5.57
Yr3 16.71 4.18
Yr4 12.53 3.13
Yr5 9.40 2.35
Yr6 7.05 1.76
Yr7 5.29 1.32
Yr8 3.96 0.99
Yr9 2.97 0.74
Yr10 2.23 0.56
Loan Amortization Table
Year Ln at Begin
Installment paid
Interest paid
Principal paid
Ln End of Saving
Yr @ 35%PV Factor PV
1 ₹ 46.35 ₹ 11.37 ₹ 8.34 ₹ 3.03 ₹ 43.32 ₹ 2.92 0.8929 ₹ 2.61
2 ₹ 43.32 ₹ 11.37 ₹ 7.80 ₹ 3.57 ₹ 39.75 ₹ 2.73 0.7972 ₹ 2.18
3 ₹ 39.75 ₹ 11.37 ₹ 7.16 ₹ 4.21 ₹ 35.54 ₹ 2.50 0.7118 ₹ 1.78
4 ₹ 35.54 ₹ 11.37 ₹ 6.40 ₹ 4.97 ₹ 30.56 ₹ 2.24 0.6355 ₹ 1.42
5 ₹ 30.56 ₹ 11.37 ₹ 5.50 ₹ 5.87 ₹ 24.69 ₹ 1.93 0.5674 ₹ 1.09
6 ₹ 24.69 ₹ 11.37 ₹ 4.44 ₹ 6.93 ₹ 17.77 ₹ 1.56 0.5066 ₹ 0.79
7 ₹ 17.77 ₹ 11.37 ₹ 3.20 ₹ 8.17 ₹ 9.60 ₹ 1.12 0.4523 ₹ 0.51
8 ₹ 9.60 ₹ 11.37 ₹ 1.73 ₹ 9.64 ₹ -0.04 ₹ 0.60 0.4039 ₹ 0.24
Present value of all tax savings in Project 2 ₹ 10.62
roposal (Faridabad)
lakhs
years
er-tax cash flows
Depreciation
%
%
PV of Inflows
6.78571
6.05867
5.40953
4.82994
4.82313
4.30636
3.84497
3.43301
3.06519
2.73677
45.29
ciation
p R pR R-Er (R-E)^2 p*(R-E)^2
b 0.3 16 4.8 4.5 20.25 6.075
n 0.5 11 5.5 -0.5 0.25 0.125 S 3.5
r 0.2 6 1.2 -5.5 30.25 6.05
Er 11.5 S^2 12.25
2stage A(1+g)
S^2 Sq(w1.s1)+sq(w2.s2)+2w1.w2.cov(a,b).s1.s2
get square root of the above equation to get risk of portfolio
pmt(A)
PV
fva a[(1+r)^n-1]/r FV
Pva a[(1+r)^n-1]/r(1+r)^n Rate
EAR [1+APR/m]^m nper(period)
Npv
Irr npv=0
[1-(1+g)^n/(1+r)^n]/r-g $ (100,000.00)
-15% $ 30,000.00
15.0% $ 30,000.00
$ 40,000.00
$ 45,000.00
Salvage
Old
new
Inc in Salvage
Recovery of NWC
NPV
MarketReturn 13.2%
Risk Free return 7.05%
Ke(Cost of Equity Capi 16.2%
NPV 38.59
IRR 19.56%
yr5
New Machine
Book Value Beginning
yr1 440.00
yr2 330.00
yr3 247.50
320.20 yr4 185.63
yr5 139.22
147.29
106.85
136.91
32.02
-5.54
142.45
18.8
100.00
81.20
12.81
236.46
New Machine
Dep and Amort Book Value End
110.00 330.00
82.50 247.50
61.88 185.63
46.41 139.22
34.80 104.41
Old Machine
old machine dep & amort 15.00 11.25 8.44 6.33 4.75
new machine dep and amort de 110.00 82.50 61.88 46.41 34.80
Incrimental Depreciation 95.00 71.25 53.44 40.08 30.06
EBIT 21.56 65.84 117.83 174.01 142.85
NPV
MarketReturn 13.2%
Risk Free return 7.05%
Ke(Cost of Equity Capi 16.2%
NPV $38.57
IRR 19.55%
OLD MACHINE
year 0 book valuedepretiati
initial investment -440 year1 60.00 15.00
net working capital -20 year2 45.00 11.25
sale of old machine 30 year3 33.75 8.44
-430 year4 25.31 6.33
year5 18.98 4.75
NEW MACHINE
book valuedepretiati book value at end
year1 440.00 110.00 330.00
year2 330.00 82.50 247.50
year3 247.50 61.88 185.63
year4 185.63 46.41 139.22
year5 139.22 34.80 104.41
MACHINE
book value at end
45.00
33.75
25.31
18.98
14.24
Year CF PVF @12% PV of in flows
1 7.6 0.89 6.7857142857143
2 7.6 0.80 6.0586734693878
3 7.6 0.71 5.4095298833819
4 7.6 0.64 4.8299373958767
5 8.5 0.57 4.8231282736081
6 8.5 0.51 4.3063645300072
7 8.5 0.45 3.8449683303636
8 8.5 0.40 3.4330074378246
9 8.5 0.36 3.0651852123434
10 8.5 0.32 2.7367725110209
Total 45.29
year balance
0 39.60
1 29.70 Total profit 46.40829
2 22.28
3 16.71 net profit 6.81
4 12.53
5 9.40
6 7.05
7 5.29 As the net profit is positive, it is favourable to invest.
8 3.96
9 2.97
10 2.23
favourable to invest.
loan amount 46.35
period 8
rate 18%
₹ 11.37
10.62342
loan amt 14
installment 5.32
period 4
implied rate 19.14%
The investor is fooling us by saying the rate of intrest is 14 but in actuality it is 19%
Yr 0 yr1 yr2 yr3 yr4
Salvage
Old
new
Inc in Salvage
Recovery of NWC
NPV
MarketReturn 13.2%
Risk Free return 7.05%
Ke(Cost of Equity Capi 16.2%
NPV 38.59
IRR 19.56%
yr5
New Machine
Book Value Beginning
yr1 440.00
yr2 330.00
yr3 247.50
320.20 yr4 185.63
yr5 139.22
147.29
106.85
136.91
32.02
-5.54
142.45
18.8
100.00
81.20
12.81
236.46
New Machine
Dep and Amort Book Value End
110.00 330.00
82.50 247.50
61.88 185.63
46.41 139.22
34.80 104.41
Old Machine
25.00%
20.00%
15.00%
Risk
10.00%
5.00%
0.00%
24.00% 26.00% 28.00% 30.00% 32.00% 34.00% 36
Return
O vs NIFTY
5295.55
22% 5682.55 7%
-1% 6704.2 18%
85% 8491 27%
25% 7738.4 -9%
21% 9173.75 19%
11% 10113.7 10%
6% 11623.9 15%
-20% 8597.75 -26%
50% 14690.7 71%
22% 17464.75 19%
-5% 17359.75 -1%
ARAMETERS
Marico *** NIFTY
19.58% 13.63%
28.43% 24.19%
15% 10.40%
0.04
0.40
ON PORTFOLIO
Variance Standard Deviation Column1
0.07717 27.78%
0.07178 26.79%
0.07004 26.47%
BEST PORTFOLIO
AND MINIMUM
0.06863 26.20%
VARIANCE
PORTFOLIO
0.07087 26.62%
0.07566 27.51%
0.08298 28.81%
0.09285 30.47%
0.10526 32.44%
0.12021 34.67%
2.00% 34.00% 36.00%
Future Buy Future Sell Call Buy
Put Buy
Call Sell
Put Sell
Cahpter Capital Structure and Decisions
Debt@5% Debt@5%
Zero Debt Rs. 300,000 Rs. 900,000
Net Operating Income NOI 100,000 100,000 100,000
Debt 0 300,000 900,000
Interest% 0 5% 5%
Interest 0 15000 45000
Net Income NI 100,000 85,000 55,000
Mkt Value of Equity 1000000 850000 550000
Value of Debt 0 300,000 900,000
Value of Firm 1,000,000 1,150,000 1,450,000
Debt / Total Value (Wd) 0.000 0.261 0.621
Equity / Total value (We) 1.000 0.739 0.379
WACC (Ko) 10.00% 8.70% 6.90%
p R pR R-Er (R-E)^2 p*(R-E)^2
boom 0.3 16 4.8 4.5 20.25 6.075
normal 0.5 11 5.5 -0.5 0.25 0.125
recession 0.2 6 1.2 -5.5 30.25 6.05
Expected return 11.5 S^2 12.25
calculation of standard daviation of a perticular stock
S^2 Sq(w1.s1)+sq(w2.s2)+2w1.w2.cov(a,b).s1.s2
get square root of the above equation to get risk of portfolio
check C200
BCR=(present value of benefits)/initial investments) (accept the project if BCRis positive, reject when negative)
The Capital Asset Pricing Model (CAPM) is a financial model that establishes a linear relationship between the expected return o
the systematic risk or volatility of an investment relative to the overall market. A beta of 1 indicates that the investment's price will move in t
pmt(A)
PV
FV
Rate
nper(period)
Npv
Irr npv=0
$ (100,000.00) npv= 769.00
-15% $ 30,000.00
15.0% $ 30,000.00
$ 40,000.00
$ 45,000.00
Loa
Year Ln at Begin
1 ₹ 46.35
Cost Saving Proposal (hardware unit) 2 ₹ 43.32
Cost 46.35 3 ₹ 39.75
Loan amount 46.35 lakhs 4 ₹ 35.54
loan period 8 years 5 ₹ 30.56
loan rate 18% 6 ₹ 24.69
Annual Intallment 11.37 7 ₹ 17.77
8 ₹ 9.60
n negative)
investment's price will move in tandem with the market. A beta greater than 1 suggests higher volatility, while a beta less than 1 indicates lo
Loan Amortization Table
Installment paid Interest paid Principal paid Ln End of Saving
Yr @ 35%PV Factor PV
₹ 11.37 ₹ 8.34 ₹ 3.03 ₹ 43.32 ₹ 2.92 0.8929 ₹ 2.61
₹ 11.37 ₹ 7.80 ₹ 3.57 ₹ 39.75 ₹ 2.73 0.7972 ₹ 2.18
₹ 11.37 ₹ 7.16 ₹ 4.21 ₹ 35.54 ₹ 2.50 0.7118 ₹ 1.78
₹ 11.37 ₹ 6.40 ₹ 4.97 ₹ 30.56 ₹ 2.24 0.6355 ₹ 1.42
₹ 11.37 ₹ 5.50 ₹ 5.87 ₹ 24.69 ₹ 1.93 0.5674 ₹ 1.09
₹ 11.37 ₹ 4.44 ₹ 6.93 ₹ 17.77 ₹ 1.56 0.5066 ₹ 0.79
₹ 11.37 ₹ 3.20 ₹ 8.17 ₹ 9.60 ₹ 1.12 0.4523 ₹ 0.51
₹ 11.37 ₹ 1.73 ₹ 9.64 ₹ -0.04 ₹ 0.60 0.4039 ₹ 0.24
Present value of all tax savings in Project 2 ₹ 10.62
ta less than 1 indicates lower volatility