ANSWER ALL QUESTIONS IN AN EXCEL SPREADSHEET (ONE SHEET ONLY)

YOU MUST SHOW ALL WORKING AND EXPLAIN YOUR ANSWERS CLEARLY

2. 3. [6 marks] Suppose that a firm has borrowed $2 million in the current year at 6% annual interest rate, with a commitment to repay the loan (principal and interest) in equal bi-monthly instalments over 10 years. Calculate from the lender's perspective: a) The complete total bi-monthly cash flow stream [2 marks] b) The complete principal stream of the cash flow [2 marks] c) The complete interest stream of the cash flow [2 marks] [10 marks] SEQwater is considering 3 mutually-exclusive plans A, B and C to extend the life of an old dam and some recreational facilities around it. The initial capital cost for all 3 projects is $50 million and the life extension for plans A, B and C will be for 6, 8 and 12 years respectively. From year 1 onwards, there will be annual maintenance cost of $3 million, $10 million and $15 million and annual benefits from tourism worth $15million, $4million and $10million respectively for A, B and C. Create a net cash flow table for all the plans. Assuming a 5% cost of capital, how would you rank all the plans and why? Use two different methods to calculate your final numerical values 4. (4 marks] A project involving an initial investment of $100 million is funded jointly by debt and equity capital in the debt to equity ratio of 2/3. The internal rate of return on the overall net cash flow of the project is 28%, while the rate of interest on the debt capital is 10%. What is the (approximate) rate of return on equity capital? [6 marks] A public service official is appraising a project proposal for a project to be done by a domestic firm. The project's present values of benefits and costs, at market prices, are $2000 and $1750 respectively. If the project goes ahead, tax of $100 will be paid to the country, and pollution costing an estimated $250 will occur in the country. Assuming that the firm is a part of the referent group, what are the net present values generated by: 5. a. The market/project benefit-cost analysis; [1 mark] b. The private benefit-cost analysis; [1 mark] c. The efficiency benefit-cost analysis; [1 mark] d. The referent group benefit-cost analysis? [1 mark] Would the firm want to go ahead with the project? Would the public official want to approve the project? Explain your answers (2 marks]