FIN3701 ASSESSMENT 2 OF SEM 2 2024 EXPECTED QUESTIONS AND SOLUTIONS (DUE 15 sept)

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BNU STA tutorials




1.1)
PV 400,000.00
I/YR 10%
P/YR 1
*P/YR 5
PMT 105,518.99

1.2)
Interest Payment Balance
Year 0 400,000.00
Year 1 40,000.00 105,518.99 334,481.01
Year 2 33,448.10 105,518.99 262,410.12
Year 3 26,241.01 105,518.99 183,132.14
Year 4 18,313.21 105,518.99 95,926.37
Year 5 9,592.64 105,518.99 0.01

, 1.3 & 1.4)
Year 0 year 1 year 2 Year 3 year 4 Year 5

Loan payment (105,518.99) (105,518.99) (105,518.99) (105,518.99) (105,518.99)

Tax savings @28% 35,000.00 33,165.47 31,147.48 28,927.70 26,485.94

After tax Cash outflow (70,518.99) (72,353.52) (74,371.51) (76,591.29) (79,033.05)

Discount factor @ 10% 0.91 0.83 0.75 0.68 0.62
Present value of
cashflows (64,108.17) (59,796.30) (55,876.41) (52,312.88) (49,073.31)
NPV (281,167.07)


workings
year 1 year 2 Year 3 year 4 Year 5
interest expense (40,000.00) (33,448.10) (26,241.01) (18,313.21) (9,592.64)
Wear and Tear (85,000.00) (85,000.00) (85,000.00) (85,000.00) (85,000.00)
Total Deductions (125,000.00) (118,448.10) (111,241.01) (103,313.21) (94,592.64)
Tax savings @28% 35,000.00 33,165.47 31,147.48 28,927.70 26,485.94


Annual Wear and tear (400000-60000)/4

85000

Annual Tax benefit of
wear and tear 23800

1.5 &1.6)
year 1 year 2 Year 3 year 4 Year 5
LEASE PAYMENTS (90,000.00) (90,000.00) (90,000.00) (90,000.00) (90,000.00)