Proposed activities

1 → Concept and types of investment

1. Indicate the elements that make up the investment for the following project.
The management of the company FITCORP has finally decided to open two
new stores in Valencia and Santander at the expense of taking the leap to
Portugal. With this, it aims to consolidate the billing volume in Spain.
To finance the operation, it will use its own funds and the sale of
1.5% shareholding that he had in the Swiss company SUNZ
2. What is meant by residual value in an investment?
3. Investments can be classified based on various criteria, such as the
support, the duration, the purpose, or the relationship of an investment with others
inversiones. Indica un par de ejemplos para cada uno de los criterios
mentioned.

2 → Financial calculations in investments: incomes.

4. The company MULTICOPISA has to replace its photocopying machines.

in seven years, for which, at the beginning of each year, he deposits €24,000
with a return of 4% annual compound interest. What capital will there be?
accumulated at the end of the seventh year?
5. Transportes Hispanos is a ground logistics company with a
important fleet of trucks. It must be replaced periodically
certain vehicles when they no longer have the capacity to withstand
the mileage required for the activity. Currently, it needs to be replaced.
two trucks valued at 80,000 € each, so he goes to an entity
to request respective loans. The Finance bank offers you an interest
annual effective rate of 5.5% with quarterly payments for 5 years.
6. The finance department of the company VOLVIT, due to having payments
recurring every month for an amount of 1,500 €, wants to find out what
how much should I invest today in a life annuity financial instrument that gives you
offers a 3.25% annual rate, if you want to receive the same for an indefinite period
amount at the beginning of each month.

3 → Methods of financial evaluation and selection of investments

7. At the company NAUTESA, whose weighted average cost of capital is 12%,

presents the possibility of expanding the assembly line and starting to
to market nautical vehicles in the Far East.

The initial investment in productive assets amounts to €2,000,000 and, in

operational funding needs, amounting to €350,000. At the end of each of the
first five years of investment, expect to have net cash flows of
600,000 €, 900,000 €, 900,000 €, 900,000 € and 210,000 €. In addition, the residual value
from this project, valued at the moment 5, is equal to €1,750,000.
 a) With this data, calculate the NPV of this project (represents
graphically the net flows; perform the calculation using the formula and
using a spreadsheet, and check that, in both cases, it gives the
same result).
b) On the same date, NAUTESA is presented with another opportunity to
investment (marketing in Ibero-America) with net flows of
next box:

0 1 2 3 4 5

Flows of
box and
value
-2,200,000 € 850,000 € 850,000 € 750,000 € €650,000 1,400,000 €
residual

Cost
medium
12%
weighted
of the capital

If the human resources available to the company prevent it

undertake both projects at the same time, which one will they choose?
applying the NPV criterion?

c) Formulate the IRR equation, calculate the internal rate of return of the
two investment projects presented to NAUTESA and answer them
issues:

If a return of 12% is requested (equal to the average cost

weighted), will any of them be rejected?
If you have to choose between one or the other, which one will it be?
selected if the IRR criterion applies?

8. The company DEFOSA has obtained a loan of €1,339,000 to finance

an investment project, at an interest of 16%, having secured the rest
from the financing of its partners. To assess the cost of capital of the
owners, we know that risk-free financial assets offer a
a profitability of 5.03% and the stock market demands a risk premium of
the companies in the sector and size of DEFOESA equal to 17%.
The cash flows are as follows:

0 1 2 3 4 5 6 7

Flows -
355,000 353,800 354,024 356,456 326.450
of the box 2,060,000
€ € € €
345,100 € 313.805 €
€ €
 a) Determine the weighted average cost of capital (to five decimal places),
with a tax rate of 30%.
b) Determine the residual value assuming that, starting from the eighth year,
for an unspecified period, at the end of each year you will receive
105.007 € (and nothing for the invested assets), and the rate used for its
The cost of valuation is the weighted average cost of capital.
c) Calculate the NPV and the IRR (using formulas and in spreadsheets).
Will the DEFOESA project be launched?

9. PATINOSA has the following investment projects with the

corresponding cash flows, which occur at the end of each year.

0 1 2 3 4 5 6

A -4,500,000 2,464,548
€
1.770.000 € 2.088.600 €
€
1,300,000 € 1.000.000 € 500.000 €

B -5,000,000 2,423,472.2 5,000,000

€
1.475.000 € 1.740.500 € 2.053.790 €
0€
3,200.00 €
€

a) Calculate the discounted payback period, the NPV, and the IRR of these projects.
knowing that the weighted average cost is 18%.
b) Indicate for each project whether it would be carried out or not.
c) In case of incompatible projects, which one would be selected in
each method?

4 → The cost of financing in investment projects

10. REGRESENGER, SA, is going to carry out an economic project and has some
financial needs amounting to €1,150,000. To finance the project,
it will resort to its optimal capital structure of €575,000 with each
one of the forms of financing (own and external). These sources of
financing will lead to the following payment flows.

0 1 2 3 4 5

Main Financing 575,000.00 -88,730.86 € -100.265,87 -113.300,44 -128.029,50 -144.673,33

on someone else's l € € € € €

Interest -74.750,00 € -69.214,99 -50.180,42 -35.451,37 -18,807.53

it € € € €

Total 575,000.00 -163,480.86 -163,480.86 -163,480.86 -163,480.86 -163,480.86

payments € € € € € €

Main Financing 575,000.00 -57,500.00

in own l € €
 Dividend -103,500.00 -103.500,00 -103.500,00 -103.500,00 -103.500,00
two € € € € €

Total 575,000.00 -103,500.00 -103.500,00 -103.500,00 -103.500,00 -678.500,00

payments € € € € € €

Determine, using a spreadsheet, the weighted average cost of

capital used in its financing, knowing that the tax rate is
30 %.

Final activities
1. The company TOMISA bears an average tax rate of 25%. Determine
the weighted average cost of capital under the following assumptions (proposes
the equations and solve using a spreadsheet)

a) If TOMISA knows that the market rewards 1.5% to risk-free assets

risk and requires a 4% risk premium for that type of projects, and the APR
External financing is 8%.

A FNC1 FNC2 FNC3 FNC4 FNC5

Financing -6,000,000
1,800,000 € 1,800,000 € 1,800,000 € 1,800,000 € 1,800,000 €
in foreign €

Financing
-9.000,00 € 3,000,000 € 3,000,000 € 3,000,000 € 3,000,000 € 3,000,000 €
in Own

b) In the event that we know that the financial expenses correspond to the
external financing shown in the previous table has amounted to €225,000
and during the time that the investment has lasted, dividends have been distributed
for a value of 1,500,000 € for the first three years and 3,750,000 € for the last two.

2. The company ALQUILOSA, at the forefront of the real estate business, wants
calculate how much should be charged annually, at the beginning of each period, to a
advisory service to which you have rented a floor in a central building of
Menorca, during the next five years, to recover the expenses of the
reform that has had to be made in said plant, which amounted to €600,000.
For this calculation, it is estimated that a TAE of 5% can be applied.
3. The company SERUM has been making annual contributions (on January 1)
each year) to establish a depreciation fund, with the aim of
renew the machinery of one of its beauty salons. The amount of the
contributions amounted to €3,500 per year, and were deposited in a
entity that offered a return of 2.5% APR. Calculate how much it amounts to
the accumulated amount at the end of the fourth year.

4. Juan Menéndez wishes to buy a commercial property as an investment. The seller

It offers you two options for payment: a) Make a first payment in cash,
 of €68,000, and pay €40,000 at the end of each of the next five years; or
b) pay, starting on the same day as the signing of the contract, four installments
annual of €70,000.

If you know that the contract has agreed to apply an APR to the operation of
4.30%, which of the two options will be more beneficial for Juan?
Menéndez?

In the event that option a) included, in addition, an additional payment at the end of the
fifth year of €25,000, could this circumstance influence the choice of
Juan?

5. A worker wishes to receive a capital of 50,000 euros at the moment of their

retirement, which will be in 10 years. If the investment fund guarantees you a
2.25% effective annual compound interest and make contributions
quarterly, how much will these amount to?

The person in charge of the financial area wants to make estimates.

futures on a series of concepts that incur expenses for the company and
thus being able to calculate more accurately the needs of
financing. Know that two receipts corresponding to the payment are made each month.
electricity and phone, and every two months the water bill. If the amounts are from
525 €, 315 €, and 110 €, respectively, how much cash should be available in the register?
beginning of the year to ensure the payment of the same if the CPI is 2.10%?
PATINOSA has two investment projects. We know that the IRR of the project...
A is at 17% and B is at 16.50%, and also that the updated values
the net benefits of both projects are €1,500,000 and €2,100,000, but we do not know about
Which of the two projects do they belong to? Which will correspond to each project?

Finals
1 → Inconsistency of the IRR and the NPV

The company CARMESA has the possibility of carrying out two projects, which are
incompatible with each other. Part of the financing will be carried out with a grant
public at zero cost, so the weighted average cost of capital is equal to 4.6%.
The cash flows projected by CARMESA for the projects are:

0 1 2 3 4 5

A -235,000 € 60,000 € 70,000 € €80,000 70,000 € 70,000 €

B -280,000 € 25,000 € 45,000 € 75,000 € 30,000 € 250,000 €

a) What will be the project chosen by CARMESA if it uses as a criterion of

choose the NPV? And if the selection criterion used is the IRR?
 b) Determine the NPV of project A and that of B, and the difference between both for
the following rates:

Weighted average cost of capital

K 0% 2% 4% 5.62224% 10% 11.20740% 14.56669% 18% 200,000%

2 → Valuation and comparison of investment projects

The company HILASA must choose for the expansion of its manufacturing plant
threads, among the six best projects presented in an idea contest
summoned for this purpose.

One of the criteria for selection is the economic-financial aspect, so it wishes

to know, based on the forecasted data of cash inflows and outflows of each one
Of the projects, which of them are feasible due to their profitability.

The project data taking into account a weighted average cost of capital
the 7% are as follows:

0 1 2 3 4 5 6

1 -4,000,000 € 100,000 € 1,600,000 € 2,000,000 € 2,500,000 € 0 € 0€

2 -2,800.00 € 600,000 € 600,000 € 600,000 € 600,000 € 600,000 € 600,000 €

3 -900.000 € 150,000 € 160,000 € 170,000 € 180,000 € €190,000 200,000 €

4 -4,100,000 € 1,500,000 € 1,360,500 € 1,175,200 € 966.800 € 757,500 € 565,200 €

5 -2,550,000 € 1,525,000 € 640,500 € 260,200 € -193.200 € 852,500 € 665,200 €

6 2,390,000 € 1,900,000 € 524.650 € -30.240 € -695.160 € 1,038,750 € 794.760 €

a) Calculate the NPV, the IRR and the payback of these projects and determine if they could
to be carried out. Which project would you choose according to each of these criteria.
b) If we take into account the response to the previous question, what project
Should I choose the company HILASA? Justify your answer.

Evaluation

1. Indicate when two investments are complementary:

a. The projects are independent of each other.
b. To undertake a project, it must be done necessarily.
another.
c. The realization of a project implies discarding another.
d. None is correct.
2. The variables that are taken into account to decide which investment project
are more profitable or interesting:
a. Collections: these are the cash inflows of the company that generate the
investment.
b. Payments: they are the expenses generated by the investment in its period of
duration.
c. FNC: is the difference between income and expenses for each
investment period.
d. All of them are false.

3. Indicate why static methods are characterized:

They are suitable for contexts of little stability.
b. They consider the time factor using a discount rate of the
FNC.
They are more reliable than dynamic methods.
d. All are true.

4. Which of the following payment sequences constitutes a constant income?

a. The sporadic services, all for the same amount, that invoices a
self-employed for a company he works for.
b. The amounts that an individual charges as rent
for a property owned by him.
c. The monthly billing that the water supplier charges you for a
company for its consumption.
d. The electricity bill of an individual.

5. Indicate what constitutes the electricity bill for an individual with a rate
monthly payment plan:
a. A constant prepaid rent.
b. A constant payable income.
c. A flat variable income.
d. A deferred income.

6. From the following sources of financing, which one does not have a cost for the
company (neither explicit nor implicit or of opportunity?)
a. The reserves.
b. The loans.
c. The debt with a supplier that offers a discount for early payment
2% discount if paid within five days of issuing the invoice.
d. The debt with the Treasury for the monthly VAT settlement.

We can say about the WACC that:

It is a weighted measure of the capital costs that presents a
investment.
It is used to update the FNC.
c. The type of tax that levies the profit must be considered.
company and the opportunity cost of the investment.
d. All are correct.
8. The company QUATISA has calculated the NPV of an investment project and has
that decides whether or not to carry out the project. When will it be carried out?
a. When the NPV is less than 0.
b. When the NPV is equal to 0.
c. You must calculate the IRR and execute it when the NPV is less than the IRR.
d. When the NPV is greater than 0.

9. The company QUATISA has calculated the IRR of an investment project and has
to make the decision to carry out the project or not. When will it accept the
implementation of that project?
a. When the IRR is less than 0.
b. When the IRR is equal to 0.
c. When the IRR is greater than the cost of the invested capital in the
project (k).
d. When the IRR is greater than 0.

10. The company QUATISA is considering carrying out two incompatible projects and estimates
It is timely to focus more on liquidity than on the profitability of those.
projects, prioritizing the one that recovers the investment more quickly
initial. What project selection technique should be used?
a. The NPV
b. The discounted payback.
c. The IRR.
d. The IVAN.