Assignment $1$

Note :

You have one week to finish this assignment that is due by $\backslash (12$: $45\backslash$mathrm$\{$pm$\}\backslash ),$ Tuesday, Feb. $4.$ Bring it to the class on that day, and I'll give you the solutions there.

Question $1$

A female customer of $40-$year$-$old wants to purchase a two$-$year term life insurance policy from your insurance company Nova Life. Premium will be received at beginning of each year and claim of $\backslash (\backslash$$ $100,000\backslash )$ would be paid in the middle of the year if ever death occurs. With an annual discount rate of $7\backslash \%,$ and using the Nova Scotia Life Table, what minimum premium will you charge on the policy?

Question $2$

Through IPO, an investment bank is helping a manufacturing firm to issue new equity to finance the firm's $\backslash (\backslash$$ $120\backslash )$ million investment project that has a present value of $\backslash (\backslash$$ $165\backslash )$ million. The firm has a debt of $\backslash (\backslash$$ $45\mathrm{.}1\backslash )$ million in place. The firm's average annual earnings has been $\backslash (\backslash$$ $12\mathrm{.}8\backslash )$ million, and EBITDA $\backslash (\backslash$$ $17\backslash )$ million. P$/$E and V$/$EBITDA ratios of similar firms without debt are $14$ and $11\mathrm{.}3,$ respectively.

a$)$ If the issuing firm wants to increase its old shareholders' wealth by a minimum of $\backslash (20\backslash \%\backslash )$ with the issuance and investment, what is the maximum issuance costs $($IC$)$ the investment bank can charge?

b$)$ Given the IC calculated above, what is the fraction of ownership does the firm need to sell to the new investors?

c$)$ If the target share price after the issuance is $\backslash (\backslash$$ $22\mathrm{.}60\backslash ),$ how many shares need to be sold to the new investors?