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"Canadian" Corporate Finance questions: There are 3 questions in total. Please make sure you include thorough explanations, include all formulas and...

Canadian Corporate Finance (3 questions)
“Canadian” Corporate Finance questions: There are 3 questions in total. Please make sure you include thorough explanations, include all formulas and calculations used to derive your answers. Please answer based on Canadian standards. Question #1 – Time Value of Money You are thinking of buying a used car that costs $8,000 and has an expected zero resale value at the end of 4 years. Both Bank1 and Bank2 are offering special low-rate car loans to students. Bank1 will loan you the $8,000 and charge you a 5% EAR and wants the loan repaid in 48 equal monthly payments, with the first payment due at the end of the first month. Bank2 will loan you the purchase price of the car at a 6% APR, with the first payment also due at the end of the first month. The Bank1 loan has also to be paid in full within 48 equal monthly payments. Your estimated costs of operating the car, including insurance, are $300 per month, payable at the beginning of each month. If you currently have $19,000 in an investment account which is earning interest at an 8% EAR, can you afford the car using either one of the special payment plans? a) What is the monthly payment for the Bank1 loan? b) What is the monthly payment for the Bank2 loan? c) What is the total cost (present value) of buying and operating the car over the four year period? Question #2 (Time Value of Money) (a) You’ve inherited $20,000,000 and have decided to use this money to open a new store in Vancouver one year from today. The annual operating costs are estimated to be $450,000 and are expected to grow at a constant rate of 2% (inflation) starting in year 2. If the interest rate is 4.5%, would you be able to fund this shelter? (b) Given the above scenario, what would be the maximum amount available for annual operating expenses? (c) How much money would you need if you expected that you would only have to operate the store for only 30 years (instead of forever) and the same scenario as in part (a)?
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Question #3 (Time Value of Money - annuity) Assume that it is now June 1, 2010 and you will need $10,000 on June 1, 2014. Bank1 compounds interest at a rate of 8 percent annually. (a)How much must you deposit on June 1, 2011 to have a balance of $10,000 on June 1, 2014? (b)If you want to make equal payments on each June 1 from 2011 through 2014 to reach your goal of $10,000, how much must each of the payments be? (c)If your father were to offer either to make the payments calculated in part (b) or to give you a lump sum of $7,500 on June 1, 2011, which would you choose? Why? (d)If you have only $7,500 on June 1, 2011, what interest rate, compounded annually, would you have to earn to have the necessary $10,000 on June 1, 2014? (e)Suppose you can deposit only $1,862.90 each June 1 from 2011 through 2014, but you still need $10,000 on June 1, 2014. What interest rate, with annual compounding, must you earn to achieve your goal? (f)To help you reach your $10,000 goal, your mother offers to give you $4,000 on June 1, 2011. You will find part-time work and make 6 additional payments of equal amounts each 6 months thereafter. If all this money is deposited with your favourite bank which pays 8 percent, compounded semi-annually, how large must each of the 6 payments be?
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