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Mr. Rahman Recently Has Decided to Purchase an Apartment

Essay by   •  February 28, 2019  •  Coursework  •  417 Words (2 Pages)  •  18 Views

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Assignment – 2

FIN 501 (Section- 3)

Fall- 2018

Case Study: 1

Mr. Rahman recently has decided to purchase an apartment. In last few weeks, he has talked to several real estate companies and has visited their projects. Finally, he has chosen a flat of Dom-Ino at Lalmatia with 1720sft. Dom-Ino will charge per sft Tk. 8,500 with a utility charge of Tk. 300,000 and garage cost of Tk. 200,000. Of the total cost Mr. Rahman will contribute 40% and rest of 60% he will arrange through a bank loan.

Mr. Rahman has his salary account with Prime Bank, so he wants to take the loan from this bank. Prime bank charges 12% annual interest on home loan to be repaid within 10 years in monthly equal installment.

Requirements:

Before taking any financial decision, Mr. Rahman wants to know the following things which you have to find for him:

  1. What would be his monthly installment?
  2.  What would be the amortization schedule of this loan?

Case Study: 2

Beximco Pharma is planning to purchase some new machineries for its factory for which it needs to invest Tk. 5,00,00 at recent time. The machines are expected to provide services to the company for next 4 years. As the finance manager you have to find out from which sources this fund can be collected. But before that you have to analyze whether the project is viable for the company. For this you have collected information about the future expected cash flow from the machineries which are as follows:

Year

Expected Cash flow

1

Tk 220,000

2

150,000

3

120,000

4

100,000

The company uses 40% of debt and 60% equity capital. For collecting debt, the company will take bank loan with 12% interest rate. The company has to pay 35% tax. In 60% equity capital, 10% can be raised by issuing preferred stock with 8% dividend rate and Tk 1 flotation cost. The other 50% equity can be collected from common share. At present, the retained earning account contains Tk 100,000. The company’s existing shares are at present sold at Tk 30 and it provided dividend of Tk 5 this year. But if the company wants to issue new shares, the new common shares have to be sold with Tk 2 underpricing and Tk 1 flotation cost. The company follows 8% constant growth rate and 15% required rate of return.

Requirements:

  1. Find the Payback Period, NPV and IRR of the project and decide whether the project should be taken or not.

  1. Find the cost of each possible sources and based on that find the WACC of the company.

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