principles-of-finance-for-the-private-sector-complete-module-4-and-module-6-separate-work
Module 4 Executive Summary (115 Points) (first assignment)
Messineo LLC borrowed $15,000 at a 14% annual rate of interest to be repaid over 3 years. The loan is amortized into three equal annual end of year payments. As the CFO of Messineo, LLC you must prepare a report of the pertinent information in a short summary for the CEO.
- Calculate the annual end of year loan payment amount.
- Prepare a loan amortization schedule showing the interest and principal break down of each of the three loan payments.
- Prepare a one page executive summary for the CEO, Linda Messineo,with the loan payment schedule explaining why the interest portion of each payment declines with the passage of time.
Also, be sure to remind her that the interest portion of the loan payment is tax deductible. You should include your spreadsheet as an appendix to your executive summary to prove your figures in the loan payment schedule.
Hint: Using a spreadsheet, you will start with the PMT function to calculate the annual payment. Next you will use the IPMT function to find the interest portion for each of the three years.
Module6 Galaxy Satellite Co. (120 Points) (second assignment)
Galaxy Satellite Co. is attempting to select the best group of independent projects competing for the firm’s fixed capital budget of $10,000,000. Any unused portion of this budget will earn less than its 20 percent cost of capital. A summary of key data about the proposed projects follows.
|
Project |
PV of Inflows |
Initial Investment |
IRR |
|
|
A |
$3,050,000 |
$3,000,000 |
21% |
|
|
B |
$9,320,000 |
$9,000,000 |
25% |
|
|
C |
$1,060,000 |
$1,000,000 |
24% |
|
|
D |
$7,350,000 |
$7,000,000 |
23% |
- Use the NPV approach to select the best group of projects. (Note that just the PV of inflows is given, you must subtract the initial investment to find the NPV.)
- Use the IRR approach to select the best group of projects. (Note that the discount rate or the cost of capital is 20%.)
- Which projects should the firm implement based on your analysis of both techniques and given the capital rationing amount? Write an email to your boss, Andy Fast, the CFO, explaining your rationale proving the choices based on the considerations of shareholder value and the maximum investment budget. Keep in mind that you are less concerned with using the whole budget than with maximizing the total return to Galaxy satellite.
**If you are using any sources make sure to cite them within the text and include a reference page**
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