A company's required return for a particular investment project can be expressed as a force of...
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A company's required return for a particular investment project can be expressed as a force of interest, 8(1). This force of interest is a function of time and at any time 1. measured in years, is given by the formula: ö(1) = 0.05+0.002r 0SrS5 6(1) = 0.06 5<t The expenditure required for this project is a payment of £100,000 at f= 0 and a further payment of £80,000 at i = 2. The income received from the project is a payment stream paid continuously from 1 = 8 to 1= 12 under which the annual rate of payment at time ris £100,000.00 Calculate the discounted payback period for this project. A pension fund purchased an office block nine months ago for £5 million. The pension fund will spend a further £900,000 on refurbishment in two months time. A company has agreed to occupy the office block six months from now. The lease agreement states that the company will rent the office block for fifteen years and will then purchase the property at the end of the fifteen year rental period for £6 million. It is further agreed that rents will be paid quarterly in advance and will be increased every three years at the rate of 4% per annum compound. The initial rent has been set at £800,000 per annum with the first rental payment due immediately on the date of occupation. Calculate, as at the date of purchase of the office block, the net present value of the project to the pension fund assuming an effective rate of interest of 8% per annum. [8] [8] A find had a value of £150,000 on 1 July 2005. A net cash flow of £30,000 was received on 1 July 2007 and a further net cash flow of £40,000 was received on 1 July 2008. The fund had a value of £175.000 cn 30 June 2007 and a value of £225,000 on 30 June 2008. The value of the fund on 1 January 2009 was £280,000 (i) (ii) Calculate the time-weighted rate of return per annum earned on the fund between 1 July 2006 and 1 January 2009. Calculate the money-weighted rate of return per annum earned on the fund between 1 July 2006 and 1 January 2009. (iii) Explain why the time-weighted rate of return is more appropriate than the money-weighted rate of return when comparing the performance of two investment managers over the same period of time. [3] [2] [Total 9] A company's required return for a particular investment project can be expressed as a force of interest, 8(1). This force of interest is a function of time and at any time 1. measured in years, is given by the formula: ö(1) = 0.05+0.002r 0SrS5 6(1) = 0.06 5<t The expenditure required for this project is a payment of £100,000 at f= 0 and a further payment of £80,000 at i = 2. The income received from the project is a payment stream paid continuously from 1 = 8 to 1= 12 under which the annual rate of payment at time ris £100,000.00 Calculate the discounted payback period for this project. A pension fund purchased an office block nine months ago for £5 million. The pension fund will spend a further £900,000 on refurbishment in two months time. A company has agreed to occupy the office block six months from now. The lease agreement states that the company will rent the office block for fifteen years and will then purchase the property at the end of the fifteen year rental period for £6 million. It is further agreed that rents will be paid quarterly in advance and will be increased every three years at the rate of 4% per annum compound. The initial rent has been set at £800,000 per annum with the first rental payment due immediately on the date of occupation. Calculate, as at the date of purchase of the office block, the net present value of the project to the pension fund assuming an effective rate of interest of 8% per annum. [8] [8] A find had a value of £150,000 on 1 July 2005. A net cash flow of £30,000 was received on 1 July 2007 and a further net cash flow of £40,000 was received on 1 July 2008. The fund had a value of £175.000 cn 30 June 2007 and a value of £225,000 on 30 June 2008. The value of the fund on 1 January 2009 was £280,000 (i) (ii) Calculate the time-weighted rate of return per annum earned on the fund between 1 July 2006 and 1 January 2009. Calculate the money-weighted rate of return per annum earned on the fund between 1 July 2006 and 1 January 2009. (iii) Explain why the time-weighted rate of return is more appropriate than the money-weighted rate of return when comparing the performance of two investment managers over the same period of time. [3] [2] [Total 9]
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Answer rating: 100% (QA)
SOLUTION To calculate the discounted payback period for this project we need to calculate the present value of cash inflows and outflows at each year At t 0 the outflow is ... View the full answer
Related Book For
Thermodynamics An Engineering Approach
ISBN: 978-0073398174
8th edition
Authors: Yunus A. Cengel, Michael A. Boles
Posted Date:
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