Reference no: EM131810538

Financial Management ASSIGNMENT

QUESTION 1 -

a)  Assume that Jillian Black has a sole income from Halcyon Ltd in which she owns 10% of the ordinary share capital.

In its financial year 2016-17 just ended, Halcyon Ltd reported net profits after tax of $800,000, and announced its net profits after tax expectation for the next financial year, 2017-18, to be 20% higher than this year's figure. The company operates with a dividend payout ratio of 80%, which it plans to continue, and will pay the annual dividend for 2016-17 in mid-January, 2018, and the dividend for 2017-18 in mid-January, 2019.

In mid-January, 2019, Jillian wishes to spend $100,000, which will include the cost of new furniture. How much can she consume in mid-January, 2018 if the capital market offers an interest rate of 8% per year?

b) Ram Shack Ltd has just paid a dividend of $3.00 a share. Investors require a 13% per annum return on investments such as Ram Shack. What would a share in Ram Shack Ltd be expected to sell for today (January, 2018) if the dividend is expected to increase by 20% in January, 2019, 16% in January, 2020, 12% in January, 2021 and thereafter by 5 per cent a year forever, from January, 2022 onwards?

QUESTION 2 -

a) Colin Way is age 40 today and plane to retire on his 65th birthday. With future inflation, Colin estimates that he will require around $2,000,000 at age 65 to ensure that he will have a comfortable life in retirement. He believes that he can contribute $3,000 at the end of each month, starting in one months' time and finishing on his 65th birthday.

i) If the fund to which he contributes earns 6% per annum, compounded monthly (after tax), how much will he have at age 65? Will he have achieved his targeted sum? What is the surplus or the shortfall?

ii) Using the fund balance, Colin then wishes to commence a monthly pension payable by the fund starting one month after his 65th birthday, and ending on his 85th birthday, after which he expects that the fund will be fully expended. If the fund continues to earn the above return of 6% per annum, compounded monthly, how much monthly pension will Colin receive, if the fund balance reduces to zero as planned after the last pension payment on his 85th birthday?

b) Ray and Betty Read wish to borrow $600,000 to buy a home. The loan from Battlers Bank requires equal monthly repayments over 20 years, and carries.an interest rate of 4.8% per annum, compounded monthly. The first repayment is due at the end of the first month.

You are required to calculate:

i) the effective annual interest rate on the above loan.

ii) the amount of the monthly repayment (consisting of interest and principal repayment components) if the same amount is to be repaid every month over the 20 year period of the loan.

iii) the amount of $X, if - instead of the above - Battlers Bank agrees that Ray and Betty will repay the loan by paying the bank $3,300 per month for the first 12 months, then $3,750 a month for the next 12 months, and after that $X per month for the balance of the 20 year term.

iv) how long (in years and months) it would take to repay the loan if, alternatively, Ray and Betty decide to repay $3,500 per month, with the first repayment again being at the end of the first month after taking the loan, and continuing until the loan was repaid.

v) under option iv) above, the amount of the final repayment. [NOTE: Towards  the end of the loan repayment period, after the final full monthly instalment of $3,500 is paid, a lesser amount is likely to be outstanding. That amount, plus interest to the end of the following month, is the final loan repayment amount.]  

My part is question 1 & 2 only with all the sub parts questions.