Hey Quanty! Here is the exam that i need to solve... many smart people struggled for hours on it..but nothing at the end.. it looks really easy and for some maybe it is.. could anyone help us out? Comparable SummarySee the attached spreadsheet (as mentioned in class: YOU do not need this for the case study¡K)Project Cost & Net Realisation SummaryWe have completed feasibility and cash flows for the proposed project; the following summary outlines the project costs and net realisations:„« Project CostsLand Acquisition 3,013,010 Consultants 302,913Construction 4,338,664Interest & Bank Fees 363,695Statutory 105,637Marketing 97,620Total Costs A$8,221,539Net Profit after Cost A$10,220,659Investment SummaryWe are seeking to raise A$300,000 from five investors (totalling A$1,500,000) to use for expenses incurred for the option and development approval process. The funds will be required for up to 9 months and will be repaid on development approval and from the 1st draw down of the development finance. A further A$300,000 will be paid to each investor from the realisation of the project profit, expected to be 15 months from 1st drawdown of development finance.Project FinanceThe 9 month pre-development period will also be used to negotiate appropriate development finance and source off-plan sales to the degree required to underpin development risk for the project. Hi,I recently was asked to take part in the financing of building a small apartment building in Sydney, Australia. I need your help on the financial analysis.Today, July 1, 2005, my colleagues asked me to lend them A$ 300,000 for 9 months. They will repay the A$ 300,000 on March 31, 2006 and an *interest payment* of A$300,000 exactly 15 months after that. Both payments are contingent upon the pending approval of the plans by the Town Council. In talking with the project leader and his banker on my recent trip to Australia, they now estimate that the project has an 85 percent chance of being approved. The main risks of the project are as follows: approval risk - 85 percent positive; construction risk - the project leader has shifted all risks to the contractor. The contractor has provided us with a price and date-to-finish guarantee. Finally, there is pre-sales risk: This is what we call a spec investment. We hope to have 40 to 50 percent of all apartments pre-sold before the building is completed construction. Experiences of other buildings in the area have had similar pre-sales. This has a large effect on the debt/equity issue. The more pre-sales we have, the less the need for equity. However, I am the only international investor in this project, so I also have other risks that I have to take into account.The project leader and the banker expect to fund the building project with 70 percent debt at 7 percent and 30 percent via private equity placement at 15 percent - given that we have 50 percent pre-sales. For every 1 percent under 50 percent under the pre-sales goal, the debt : equity ratio shifts changes by 5 percent. That is, if we only have 49 percent pre-sales, then the amount of equity increases to 25 percent, etc. It is to everyone¡¦s advantage to have as many pre-sales completed as possible. In any case, the risk that the project will not be approved has an effect on my expected returns - they will go up. I require 10 percent annual return on my other investments.Step 1: Developmental / Foundational Finance1) Assuming that I had A$ 300,000 already in Australia and that I will keep the monies in Australia when I receive the two cash inflows and invest the first inflow at my required rate of return until the second payment arrives, at which point I cash out on the project, a) What is the absolute return on the project in AUD? b) What are the annual returns? c) Should I invest in this project? 8 pts.2) Now assume that I had to buy Australian dollars with Swiss francs on July 1, 2005 to make this investment. Assume for this question that I bring the monies back to Switzerland when I receive the two cash inflows and invest the first inflow at my required rate of return until the second payment arrives at which point I cash out of the project.a) What is the absolute return on the project in CHF?b) What are the annual returns?c) Should I invest in this project? 10 pts.3) Now assume that I had to buy Australian dollars with USD on July 1, 2005 to make this investment. Assume for this question that I bring the monies back to the US when I receive the two cash inflows and invest the first inflow at my required rate of return until the second payment arrives at which point I cash out of the project. a) What is the absolute return on the project in USD?b) What are the annual returns?c) Should I invest in this project? 5 pts.4) Given that I do not need the monies at the project in a specific currency in order to finance new projects, in which host currency should I invest in this project? That is, in which currency do I make the most money? 5 pts.5) I am the only international investor in this project. a) What type of risks do I have in this investment that my Australian colleagues do not have?b) How large (what is exposed?) are these risks? 12 pts.6) Because you are unsure about the stability of the world interest rates, you simulate the results for questions 1 - 3. For your simulation, you think that there might be as much as a 15 percent chance that the interest rates will increase / decrease by 0.5 percent for the entire investment period. a) Based on these new facts, how do your results compare to those in questions 1 - 3?b) What if it is generally accepted that interest rates will change, but they do not? Under what situations do you stand to win or lose if that happens? c) What do bank analysts and the central banks predict will happen to the AUD, CHF and USD in the next months? Please cite all sources. 18 pts.7) Assuming that I used CHF to fund the deal, but I do not need the funds to invest in antoher project until 3 years after the last payment is received, provide me with a comprensive offer to invest my monies in a well balanced portfolio with my required rates of return. The analysis should provide me with a clear overview of how you plan to mitigate the risks you told me about in question 5 above. I require a Sharpe ratio of 0.75 and expect my annual rate of return to be at least 10 percent. 21 pts.Step 2: Real Estate Purchase (the price of the apartment in step 2 is A$325,000)Because I am a foundational investor, the project managers have decided to let me in on a real deal to thank me for working with them. They will allow me to purchase one apartment unit ( I have already chosen a great one from the plans ¡V top floor, east side, apartment unit number 28) at 10 percent under market value (list value) of A$325,000. Actually, I would invest the first A$300K during the period from the 10th to the 24th month at an annual rate of 6 percent (I do this because of capital gains taxes in Australia ¡V otherwise, I would bring it back to Switzerland or another market and invest it at a rate closer to my required rate of return = 10%). I take a part of the new total amount (A$ 300K plus interest + A$ 300K) for a downpayment on one of the apartments. (Assume that I do not have to pay anything as a downpayment until the 24th month when the project is expected to be completed). I only need 10 percent downpayment, the rest I transfer back to Switzerland at the end of the 24th month and invest it at 10 percent for a year. If I agree to this deal, I assume that, based on current growth in the apartment market in Sydney, I will be able to sell the unit for a 25 percent net profit within one year of the project¡¦s completion ¡V including the 10 percent purchase discount. I would transfer all the profits earned at the end of the 36th month back to Switzerland.8) Given the information from Step 1 and some of your answers there, and assuming that I will bring all monies back to Switzerland at the end of the 36th month, a) How much profit (absolute) in CHF will I have earned at the end of this total investment? b) What is this in annual return terms? c) Should I invest in this investment considering my required annual rate of return? 21 pts.9) Provide me with an executive, one page summary of your answers / recommendations, names of all group members and total time invested in this case study. 0 points but mandatory.

There are a few people here who would find this specific problem a challenge, but even fewer, if any, who will give two hours of their (usually not free) time for a school assignment.

I like that kind of challenges. What about we all co-operate? I'll answer the last part of question 9.Y.