Question 1:

1. Please distinguish between 3 forms of the business: solepropriatorship, partnership and corporation. Explain with example how are they different from each other from the point of Ownership, Management, Liability and Taxation.

2. Some investors argue that one of the main decision-making criteria whether to invest into the business is the company`s mission statement, therefore companies should be very careful when publishing mission statement. Please give an example of mission statement and suggest what are the important aspects managers should consider in forming the statement.

Question 2:

1. An initial investment of $250`000 is expected to produce an end-of-year cash flow of $320`000.

• What is the NPV of the project at a discount rate of 16%?
• - What is the rate of return of the project?

2. You are considering an opportunity to purchase a new Play Station 5 for 600$. The payment terms are 3 years same as cash. If you can earn 5% on your money in each of the next 3 years, that would be compounded, how much should you set aside today to make the payment due in three years?

3. An investment of $250,000 is expected to generate the following cash inflows during the next 6 years. Prepare the amortization schedule for the project and decide whether it worth to invest in it (using NPV method) if the opportunity cost of Capital is 8%?

Years	Cash Inflows ($)
1	70,000
2	85,000
3	55,525
4	72,890
5	65,250
6	78,990

Question 3:

1. A man borrows 2000 for 160 days at 6,50%. What amount must he repay? (use a 360-days year)

2. Use the simple interest formula to find the rate on a 2000 loan for which the interest was 12 for 30 days. (use a 360-days year)

3. How long it will take 2000 to accumulate to at least 360 at 11.5% ordinary simple interest? (use a 360-days year)

Question 4:

1. A person deposits $3000 into a savings account that earns interest at 7,50% compounded daily. How much interest will be earned:

• during the first year?
• during the second year?
• What ist he accumulated amount oft he Investment?

2. With the same investment of $3000 after 3 years compounded semiannually the bank account stands at $3860.

• What was the compounded annual rate of increase?
• What was the compounded annual rate of increase if the account was compounding quartarly?

3. How long did it take

• $3000 to accumulate to $3500 at j₄=10% (compounded quartarly)
• $3000 to accumulate to $3800 at j₂=12% (compounded semianually)
• $3000 to accumulate to $4200 at j₁₂=16% (compounded monthly)

Question 5:

1. Name and explain the main differences between the four techniques (four models) of capital budgeting.

2. The CFO of Roland GmbH wants to develop and grow the business and has two mutually exclusive alternatives to choose from:

1. The first option would be to enlarge the plant in Germany and buy a new building. This involves an initial cost of $3,000,000 and is expected to generate $125,000 a month in revenue for the next 3 years at a discount rate of 6% compounded annually.

2. Alternatively, the company could invest the $9,000,000 to build a new factory in the US and enter the American market. This will generate $200,000 a month in revenue and last for the next 6 years.

Decide which is the best choice between A or B. Your result must be supported by using the correct capital budgeting model and calculating the results of both A and B.

You may use the excel to:

• Determine the best choice by NPV
• Determine the best choice by PI
• Determine the best choice by IRR
• Determine the best choice by Payback

3. Based on your findings from part b), give a recommendation which project the company should accept if company is limited in the capital resources and requires the project to be paid back within 4 and a half years?