Duration Estimation Model

Thus, final free cash flows for the project come out to be $-3.750 million, $0.889 million, $2,563 million, $5,719 million and $2,388 million for years 2011, 2012, 2013, 2014 and 2015 years respectively.

What are the expected non-operating cash flows when the project is terminated in Year 10?

academic year interest rate of 3.76 percent would pay a 5,032 dollars interest over 10 years,

The company has an agreement with a bank that allows the company to borrow the exact amount needed at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company will pay the bank all of the accrued interest on the loan and as much of the loan as possible while still retaining at least $50,000 in cash.

What annual interest rate is needed to produce $200,000 after five years if only $100,000 is invested?

1) Establish the principal and interest amount of the monthly payment. Using the 30 year loan principal and interest amount of the payment is $1,150.92

Therefore the annual interest rate is 8% and the effective annual rate compounded quarterly is 8.24%

a. How much would the payment be if rate of interest is 5% and you only financed the truck for 48 months?

See Table 1: Expected non-operating cash flow when the project is terminated at year 4 = 165,880$

From 15 July 2000 until 15 January 2001 = 6.75% coupon paid. From 15 January 2001 until 31 May 2001 (4.5 months) = 6.75 % x 4.5 months/6 months = 5.06%

Also this cashflows also depend on the financing alternative we choose. In this case I used the Industrial Revenue Bond.

The present value of all these cash inflows and outflows can be calculated by discounting them at 12.19%. This rate is calculated by assuming that the purchasing power parity holds in this scenario. The company can do the feasibility analysis by looking at both from the subsidiary’s and parent’s perspective by assuming that the purchasing power parity holds. Hence, this rate can be regarded as opportunity cost of investment because it is the second best alternative for the company for investment purposes.

The semi-annual compounded interest rate is 5.2% (a six-month discount rate of 5.2/2 = 2.6%). (15 points)

Since the interest payments are tax deductible, the aftertax cash flow from the interest payments will be:

This project evaluates the discounted Net Present Value which shows the estimated cash flow. The cash flow forecast is for 10 year which incorporates International complexities as well as the cost of capital.