Corporate Finance and Points
Business Consultancy International
BBCi 2009
WS 2009/10
Final Examination
Principles of Corporate Finance I
Dr. Kinga Niemczak
14.12.2010
Name: ___________________________
Student No.: ______________________
1. a. Calculate the value of a 4.65% five-year €1,000 bond, if you know that the bond is rated AAA and the typical YTM for such bonds is 6.25%.
(6 points)
b. How will the value of this bond change (in %) if yield increases to 7%? (use duration)
(10 points)
2. a. Your friend is moving to another country next month and is considering what to do with her current apartment in Vienna. Her real estate agent has already found a couple willing to buy the apartment for €250,000 that would be paid in cash next month. But she also knows that she could rent the apartment for €1,400 per month for 10 years. If the rate she could earn on her money is 6%, would you advise her to sell the apartment or to rent it?
(6 points)
b. You’re planning to borrow €30,000 to buy a new car. You were offered a 6-year loan which needs to be repaid monthly at 11% annual interest (with the first payment now). How much money would you have to repay each month?
(8 points)
3. Shepard Industries is evaluating a proposal to expand its current distribution facilities. Management has projected the project will produce the following cash flows for the first two years (in millions):
Year
1
2
Revenues
1200
1400
Operating Expense
450
525
Depreciation
240
280
Increase in working capital
60
70
Capital expenditures
300
350
Marginal corporate tax rate
30%
30%
a. Calculate Shepard’s incremental EBIT for the 2 years.
(4 points)
b. Calculate Shepard’s incremental net income for the 2 years.
(4 points)
c. Calculate the firm’s free cash flows from the project.
BBCi 2009
WS 2009/10
Final Examination
Principles of Corporate Finance I
Dr. Kinga Niemczak
14.12.2010
Name: ___________________________
Student No.: ______________________
1. a. Calculate the value of a 4.65% five-year €1,000 bond, if you know that the bond is rated AAA and the typical YTM for such bonds is 6.25%.
(6 points)
b. How will the value of this bond change (in %) if yield increases to 7%? (use duration)
(10 points)
2. a. Your friend is moving to another country next month and is considering what to do with her current apartment in Vienna. Her real estate agent has already found a couple willing to buy the apartment for €250,000 that would be paid in cash next month. But she also knows that she could rent the apartment for €1,400 per month for 10 years. If the rate she could earn on her money is 6%, would you advise her to sell the apartment or to rent it?
(6 points)
b. You’re planning to borrow €30,000 to buy a new car. You were offered a 6-year loan which needs to be repaid monthly at 11% annual interest (with the first payment now). How much money would you have to repay each month?
(8 points)
3. Shepard Industries is evaluating a proposal to expand its current distribution facilities. Management has projected the project will produce the following cash flows for the first two years (in millions):
Year
1
2
Revenues
1200
1400
Operating Expense
450
525
Depreciation
240
280
Increase in working capital
60
70
Capital expenditures
300
350
Marginal corporate tax rate
30%
30%
a. Calculate Shepard’s incremental EBIT for the 2 years.
(4 points)
b. Calculate Shepard’s incremental net income for the 2 years.
(4 points)
c. Calculate the firm’s free cash flows from the project.