Fantastic Growth Ltd Case Study - Accounting & Finance Assignment Help

Assignment Task

Question 1

a) You are offered an investment that will return you three $7000 payments. The first payment will occur three years from today. The second will occur in six years from today, the third will follow in the following year i.e. seven years from today. If you can earn 9 per cent: i) What is the most this investment is worth today? ii) What is the future value of the cash flows?

b) You have determined you can afford to pay $350 per month toward a new convertible sports car. You see an advertisement in the paper for a bank loan at the rate of 15% pa and you want to make monthly payments over the next 4 years. i) How much can you borrow?

c) Your company is considering an issue of preference shares. The market is currently expecting a return of 7 percent and your company expects earnings per share to be $10.10 and the dividend for preference shares to be $1.40. i) What will be the issue price of a preference share?

d) Answer the following questions: i) What is an NIR? What is an EAR? ii) What is the difference between NIR and EAR? If an interest rate is given as 10 percent compounded daily what do we call this rate.

e) Fantastic Growth Ltd, a high technology company, has been growing at the rate of 20 percent per year. You believe that this growth rate will last for two more years and then drop to 8 percent per year thereafter. Total dividends just paid were $4 million for 8 million shares, and the required return is 15 percent. i) What should the share price be today?

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