Question 2 (13 marks) Kelvin, CFA, is a security analyst in HIIT Investment House. He is analyzing A-Plus Co., a UK listed electric car manufacturer. A-Plus issued both bonds and common stocks 2 years ago. (a) State TWO differences between issuances of bond and common stock in raising capital to both the company and the investors. (8 marks) (b) Suppose A-Plus Co. is expected to increase dividends by 15% in year one and by 10% in year two. After that, dividends will increase at a rate of 5% per year indefinitely. If the last dividend (just paid) was $10 and the required return is 18%, Calculate the stock price of the A-Plus Co. (5 marks) Question 3 (11 marks) Consider the following two mutually exclusive projects (A and B). Year | Cash Flow (A) | Cash Flow (B) 0 - $33,600 - $38,000 29,000 17,500 2 9,800 13,000 3 3,500 22,400 IRR 18.38% 17.68% Whichever project you choose, if any, you require a 11 percent return on your investment. (a) Calculate the payback period for each project. Based on the payback period, which project should you choose? (3 marks) (b) Calculate the net present value (NPV) of each project. Based on the NPV, which project should you choose? (3 marks) (c) Based on your answers in (a), (b) as well as the given IRR, which project will you finally choose? Explain. (5 marks) Question 4 (12 marks) Panda Corporation is considering a new three-year project that requires an initial fixed investment of $2,100,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project requires an initial investment in net working capital of $70,000 which will be recovered at the end of the project's life. The company has already spent $50,000 on a marketing survey to determine the viability of the new project. No matter whether the new proposal is accepted or not, this survey cost will not be recovered. It is estimated to generate $1,800,000, $1,600,000 and $1,400,000 in annual sales in these 3 years. Besides, it is estimated that the costs will be $750,000, $600,000 and $450,000 respectively in these 3 years. The tax rate is 21 percent. (a) Calculate the projected operating cash flows for Panda Corporation for Year | to Year 3. (3 marks) (b) Copy the following table to your answer book and fill in all the blanks. (6 marks) Year 0 1 2 3 Operating cash flow (OCF) Change in net working capital (ANWC) Net capital spending (NCS) Cash flow from assets (CFFA) (c) Suppose the required return on the project is 10 percent. What is the net present value (NPV) of the project? Explain whether the company should accept this project. (3 marks) FIN2001 Financial Management Assignment 2 Question 1 (14 marks) Sarah is a newly appointed financial analyst at an investment firm, where her role involves assessing various investment opportunities. In her latest assignment, she is tasked with evaluating a selection of four bonds issued by different entities, including corporations and government bodies. Understanding the characteristics of these bonds is crucial for making investment decisions. The bonds differ in terms of yield to maturity, maturity period, face value, coupon rates, and payment structures. Below is a summary of the relevant data for each bond: Bond | Yield to | Maturity Face Coupon Coupon | Issuer maturity value rate payment Ww 3.8% 10 years $1000 3.0% Semi- GreenTech annual Innovations Co. Ltd. xX 5.0% 5 years $1000 6.0% Annual Skyline Solutions, Inc. Y 5.8% 10 years $1000 5.8% Annual Forever Happy Company Z 5.0% | year $1000 0% None US Government (a) For bonds W, X, Y, and Z: Calculate their current market prices based on the provided data. Please round your answers to two decimal places. (8 marks) (b) For bonds W and X: Based on your calculations from part (a) and/or other distinguishing features, classify each bond as a discount bond or a premium bond, and provide a brief explanation for your classification. (2 marks) (c) Suppose bond W% is another bond with annual coupon payment and all other factors are same as W. Comparing W%, X and Y: Which bond will have a greater rise in bond price when market interest rate drops? Explain briefly. (No calculation required) (3 marks) (d) For bond Z: Identify the specific name of bond Z, considering its unique characteristic of having no coupon payments. (No explanation required) (1 mark)