Question 2 - Cash flow valuation (15 marks)

As the General Manager of Glentronics you approached HFC bank in order to obtain a term loan so that the company can buy a new production equipment. The bank offers your company a loan of $1.5m over a fifteen-year period at a rate of interest of 9.00 percent, payable at the end of each month.

Before making the recommendation to go with HFC Bank, you decided to approach Bred Bank to obtain on the loan facility. Bred Bank offers the company a fully drawn advance of $1.5m over a fifteen-year period at a rate of interest of 9.00 per cent, payable in advance at the beginning of each month.

Required:

a) How much will be your first month repayment with HFC Bank?

b) How much interest will be paid to HFC in the first month?

c) How much will be the first loan balance with HFC at the end of the first month?

d) How much will be the monthly repayment at Bred Bank?

e) Which bank will you go with and why?

Question 3 - Bond Valuation (15 marks)

A high net-worth individual has invested in a 15-year treasury bond with par value of $1,000,000 and a 12% coupon rate. It pays coupon every quarter and the bond just made its twentieth payment. 15-year treasury bond are currently yielding 13%, 10-year treasury bond are yielding 10% and, 5-ear treasury bond are yielding 8%

required:

Calculate the price of the bond and advise the bond holder to sell or hold on to the bond and why?

Question 4 - Share valuation (15 marks)

Anderson Concrete Pty Limited (ACP) has introduced another product. as a result, dividends are expected to grow at 18% for the next 3 years. After that the growth rate will fall to 9% indefinitely. ACP has a long-term debt and its expected rate of return is 11.35%. the company just paid a dividend of $0.55 per share.

Required:

a) Calculate the estimated value of ACP stock?

b) What is the value of the stock at the end of year 4?