LLC Finance Assingment Help With Solution
Part A – Interest Rate Issues
Securo have been seeking information regarding what banking facilities are available to the firm in order to invest cash. The following options have been identified by the junior assistants in Master Finance Consultants LLC. All work in this section is expected to follow four decimal places
Question 1) Maximum 200/minimum 100 words with full calculations
Securo are particularly interested in a) Options 1 & 2 and also b) Options 9 & 10. Please show detailed ( a line by line explanation) calculation with all formulas needed to demonstrate whether which option between 1 & 2 and which option between 9 & 10 are better for Securo on a semi annual Bond basis.
Written explanations as well as mathematical calculation are expected.
Question 2) maximum 150/minimum 100 words with full calculations
If the benchmark were Bond Basis annually, would your better options between 1 & 2 and 9 & 10 be the same or, in fact, different. Please explain with detailed written as well as mathematical evidence.
Question 3) maximum 150/minimum 100 words with full calculations
It is now your job to calculate all ten options into the benchmark of a Bond Basis on a biannual rate. Order them from the most economical to the least economical for Securo with evidence of general calculations. Only basic mathematical explanation is expected. Fill in the sheet above and include it
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Part B – Time Value of Money, overall outlay to deliver Securo project.
Securo have asked us to analyse a new contract of theirs which will be to produce specific security fencing for a major project. This contract would be one of Securo’s biggest order this year, and they have some complications with how their future cash flows will look. This complicates what strategy they take in order to be cost effective in executing this order. Securo are using our services to best advise them.
Reports from Securo’s various operations departments have come back with their projections of what costs are expected for the length of this project. The entire project will work as follows:
-This project will start on January 1st, 2015 and will run for the next six years.
-We have a machine which will be able to produce their specialist product; however, this machine is becoming quite worthless. On January 1st 2015, the old machine will be worth $75,000 but it must be said that it will lose exactly 1/6th of its current value until it becomes economically worthless and unusable in 2021.
-Yearly operating costs can be broken up into two separate sections:
Materials will cost $11000 in 2015 and will increase 3% annually from at a compound rate over the course of the next years.
Labour will cost $4000 in 2015 and is projected to increase at a compound rate of 25%.
Adding these figures up will account for operating costs for the old machine.
Because of this major new order, it may well be prudent to purchase a new machine to replace the old. Purchasing the new machine will not suffer in any further cost to the old machine.
-The new machine can be purchased to begin production on January 1st, 2015, 2016, 2017 or 2018. It cannot be purchased after this point.
-The machine will cost $175,000 in 2015. Purchasing the new machine at any year after 2015 will be at a compounded inflated rate of 1%.
-The new machine will depreciate at a 10% rate based upon the original purchase price. Therefore, after ten years the new machine will be economically worthless and useless.
-Operational costs can be made up of the following two sections:
Materials will cost $9,500 from the moment the new machine is purchased with a compounded annual rate of 3% projected after that.
Labour will be $2500 from the moment of purchase with a compounded projection of 25%.
No matter what year the new machine is purchased the operational costs remain at the same budget as described here.
– Finally, at the end of the project you must sell the machine you are using on January 1st, 2021 at whatever the calculated resale value will be. This will be your final cash flow for this project.
Question 1) – 50 marks – maximum 1000/minimum 500 words with full calculations
If the interest rate is 1% on a biannual Bond Basis in order to prepare for such an investment now (PV), which strategy is it the most economical to execute the Securo order if we are to lodge money to cover the cost upfront on January 1st, 2015?
a) Purchasing the new machine on January 1st, 2015
b) Purchasing the new machine on January 1st, 2016
c) Purchasing the new machine on January 1st, 2017
d) Purchasing the new machine on January 1st, 2018
e) Not purchasing the machine at all/relying on the old machine to execute the entire order
It is imperative you include a 1000 word explanation of all your calculations which led you to your final answer. Calculations must also be included.
Your written answer must include:
i. A background explanation of all the formulae needed for this question
ii. A line by line explanation on why one of the options is the more economical choice
iii. Any conclusions drawn from this investigation – are the options similar in final PV or quite different? Explain why this might be the case.
Question 2) – 20 marks – maximum 500/minimum 400 word explanation with full calculations
Replace the 1% biannual Bond Basis interest rate with
i) the better option from Part A, Question 1a)
ii) the better option from Part A, Question 1b)
on a biannual percentage Bond basis.
Does your most economical choice change with any of these new interest rates? If so, what does the new most economical choice become? Is it a conclusive better new choice or not? If there is no change in the better economical choice, does the choice from Part B, Question 1 become more conclusive choice or less so.
A full written explanation as well as mathematical calculation is expected.
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