FINANCIAL ANALYSIS

Financial Analysis

Financial Analysis

Ans # 2- (a)

Lease Payment Schedule

Year (t)

Installation Amount in $

1

43,000

2

43,000

3

43,000

Total Lease Payments

129,000

Present Value of total lease payments

171,699

Ans # 2- (b)

No.

Due Date

Payment Due

Payment

Interest

Principal

Balance in $

150,000

1

12/31/2012

60,317.22

60,317.22

15,000.00

45,317.22

104,682.78

2

12/31/2013

60,317.22

60,317.22

10,468.28

49,848.94

54,833.84

3

12/31/2014

60,317.22

60,317.22

5,483.38

54,833.84

0.00

Total Payments

$180,951.66

Total Interest

$30,951.66

Ans # 2- (c)

According to my analysis, the present value of lease payment will be $171,699 whereas if the contractor acquired loan to purchase the truck then the contractor has to pay $180,951.66 which include the amount of interest of about $ $30,951.66. Therefore, it is highly recommended that the contractor will go for leasing because it is cheap as compared to acquiring loan and saves $ 9,252.66.

Ans # 3 (a)

I have made a table which assisted me in making diagram.

Price

Profit

Total cost to option buyer (Strike price + price of the option) (12+1)

9

-4

13

10

-3

13

11

-2

13

12

-1

13

13

0

13

14

1

13

15

2

13

16

3

13

17

4

13

18

5

13



In this profit diagram, the price is shown on horizontal axis and profit is shown vertical axis. It is mentioned in the question that the price of the share is $1 and the strike price of the share is $12. It shows that the total cost of exercising share will be the sum of the strike price and the price paid to purchase share. Thus, total price become $13. Therefore, the option buyer will exercise its right to buy the share when it is above $13 or equal to $13. It is shown in the figure that when the price of the share is less than $13 and there is a loss for the buyer. When the share price goes up than $13, buyer will start making profit. One can say that the $13 is the breakeven point.

Ans # 3 (b)

Intrinsic value is the intrinsic value is the difference between the current price and the strike amount. Usually, investor calculates the intrinsic value of the share when option is in the money. In this case, ...