Cash budget, Capital Budgeting (Payback, NPV and IRR) , Capital Structure (EBIT-EPS analysis) , and Cost of Capital

--- QUESTION 1 - CASH BUDGET Keith Brothers had sales of R87 000 in May and R83 000 in June. Sales for July, August and September are expected to be R74 000; R67 000 and R56 000 respectively. The company has a cash balance of R20 000 on 1 July and wishes to maintain a minimum cash balance of R20 000. Additional information (a) Sales are: 15% for cash; 70% collected in the month following sales and 15% collected two months after sales. (No bad debt is experienced.) (b) The company expects to receive other income of R4 000; R5 000 and R7 000 respectively in July, August and September. (c) Expected cash purchases by the company are R70 000; R80 000 and R75 000 respectively in... click for more

How to calculate a lease payment using the information given...

I am hoping someone can review/provide the exact formulas required to arrive at the final answer for this problem. I'd like to understand how to approach this type of problem. --- Leases R Us, Inc. (LRU) has been contracted by Robotics of Beverly Hills (RBH) to provide lease financing for a machine that would assist in automating a large part of their current assembly line. Annual Lease payments will start at the beginning of each year. The purchase price of this machine is $250,000, and it will be leased by RBH for a period of 5 years. LRU will utilize straight line depreciation of $50,000 per year with a zero book salvage value. However, salvage value is estimated to actually be $... click for more

Bonds

(a) What is the price of a 15% coupon bond with par value of $120 if it matures in 4 years from now and pays the coupon semi-annually? Assume that the annual percentage rate is 11%. (b) If we think of the cash flows from this bond as a portfolio of zero coupon bonds that mature every six months, then it is possible to construct a replicating portfolio by purchasing zeros. Assume that you can easily purchase zeros (zero coupon bonds) with par values of $3 from the market. Show how the bond in (a) above can be valued by replicating it with a portfolio of zeros. If the price of this bond is $140, is there an arbitrage opportunity? Explain.

Bond's Value

EFGH corporation has a coupon bond outstanding with a 10% coupon rate (interest is payable annually). The bond has 10 years to maturity and a face value of $1000; similar bonds currently yield 7%. By prior agreement, EFGH will skip the coupon payments in years 4, 5 and 6. These payments will be repaid without interest, at maturity. (a) What is the bond's value? (b) Find the bond's value if the discount rate is 5% and coupon payments are made in years 4,5 and 6 as well as the other years.

Interest Rate

An Insurance company has just approached you with a proposal that they consider as a good deal, "You are to pay them $150 a year for 8 years and they will pay you $150 a year thereafter in perpetuity." If this is a fair deal, what is the rate of interest?