1 Dr. Heba Wahba

Finance Model Answer of Assignment Part 1

Copy 2015

Adapted by

Dr. Heba Wahba

CPA – CIA – CMA

01114364363

2 Dr. Heba Wahba

= + =

a. bp (0.20)(0.80) (0.35)(0.95) (0.30)(1.50) (0.15)(1.25)

0.16 0.3325 0.45 0.1875 1.13

3 Dr. Heba Wahba

($20,000 $20,000) $1,600 $1,6008%

$20,000 $20,000

($36,000 $35,000) $1,400 $2,4006.86%

$35,000 $35,000

($34,500 $30,000) 0 $4,50015%

$30,000 $30,000

($16,500 $15,000) $375 $1,87512.5%

$15,000 $15,000

($107,000 $100,000) $3,375 $10,37510.375%

$100,000 $100,000

rA 4% [0.80(10% 4%)] 8.8%

rB 4% [0.95(10% 4%)] 9.7%

rC 4% [1.50(10% 4%)] 13.0%

rD 4% [1.25(10% 4%)] 11.5%

4 Dr. Heba Wahba

rj RF [bj(rm RF)]

Asset A

rj 0.09 [0.80(0.13 0.09)]

rj 0.122

Asset B

rj 0.09 [1.30(0.13 0.09)]

rj 0.142

5 Dr. Heba Wahba

6 Dr. Heba Wahba

a.

Project rj RF [bj(rm RF)]

A rj 9% [1.5(14% 9%)] 16.5%

B rj 9% [0.75(14% 9%)] 12.75%

C rj 9% [2.0(14% 9%)] 19.0%

D rj 9% [0(14% 9%)] 9.0%

E rj 9% [(0.5)(14% 9%)] 6.5%

7 Dr. Heba Wahba

a. B0 I (PVIFArd%,n) M (PVIFrd%,n)

B0 120 (PVIFA10%,16) M (PVIF10%,16)

B0 $120 (7.824) $1,000 (0.218)

B0 $938.88 $218

B0 $1,156.88

b. B0 I (PVIFArd%,n) M (PVIFrd%,n)

B0 120 (PVIFA12%,16) M (PVIF12%,16)

B0 $120 (6.974) $1,000 (0.163)

B0 $836.88 $163

B0 $999.88=1000