Sunny Investment Corporation (Sunny) would like to put its spare cash of $ 10 million in...

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Sunny Investment Corporation ("Sunny") would like to put its spare cash of $ 10 million in a bank deposit account for 4 years. Bank A is offering a deposit interest rate of 6% p.a.. The interest is payable at the end of each year for 4 years. A. Assuming Sunny will not withdraw any capital or interest from the bank account and let the deposit earn compound interest, calculate the amount Sunny will have in the bank account at the end of 4 year. (5 marks) B. Bank B is willing to offer Sunny an interest rate of 5.9% p.a. but the interest will be compounded every three months. Calculate the Effective Interest rate. Should Sunny deposit in Bank B instead of Bank A? Explain your answer. (5 marks) C. Sunny is considering invest in project Sky. The present value of the cash flows from investment project Sky is $10,499,034.70 when discounted at 8% p.a. The company expects to receive cash flows from the investment project as shown in the following table. Calculate the cash flow to be received at the end of year 3. (5 marks) End of Year 1 2 3 Cash flow to be received $3.4 million $4.5 million D. Sunny is also considering another investment project Moon. The project can generate a constant cash flow of $200,000 at the end of each year forever. Sunny's financial controller calculated the present value of the cash flows from investment project Moon to be $2,857,143. Calculate the discount rate the financial controller used in his calculation. (5 marks) E. Suppose Sunny started a savings plan that guaranteed a rate of return of 8% p.a. ten years ago. Sunny has been saving $1.2 million at the end of each year for 10 years. Assuming Sunny will not take out any capital or interest and the accumulated amount will be compounded annually, calculate the total amount that would be accumulated in the savings plan at the end of year 10. Sunny Investment Corporation ("Sunny") would like to put its spare cash of $ 10 million in a bank deposit account for 4 years. Bank A is offering a deposit interest rate of 6% p.a.. The interest is payable at the end of each year for 4 years. A. Assuming Sunny will not withdraw any capital or interest from the bank account and let the deposit earn compound interest, calculate the amount Sunny will have in the bank account at the end of 4 year. (5 marks) B. Bank B is willing to offer Sunny an interest rate of 5.9% p.a. but the interest will be compounded every three months. Calculate the Effective Interest rate. Should Sunny deposit in Bank B instead of Bank A? Explain your answer. (5 marks) C. Sunny is considering invest in project Sky. The present value of the cash flows from investment project Sky is $10,499,034.70 when discounted at 8% p.a. The company expects to receive cash flows from the investment project as shown in the following table. Calculate the cash flow to be received at the end of year 3. (5 marks) End of Year 1 2 3 Cash flow to be received $3.4 million $4.5 million D. Sunny is also considering another investment project Moon. The project can generate a constant cash flow of $200,000 at the end of each year forever. Sunny's financial controller calculated the present value of the cash flows from investment project Moon to be $2,857,143. Calculate the discount rate the financial controller used in his calculation. (5 marks) E. Suppose Sunny started a savings plan that guaranteed a rate of return of 8% p.a. ten years ago. Sunny has been saving $1.2 million at the end of each year for 10 years. Assuming Sunny will not take out any capital or interest and the accumulated amount will be compounded annually, calculate the total amount that would be accumulated in the savings plan at the end of year 10.

Answer rating: 100% (QA)

SOLUTION A To calculate the amount Sunny will have in the bank account at the end of 4 years we can use the compound interest formula A P1 rnnt Where A Final amount P Principal amount initial deposit ... View the full answer