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Qatar Modern Electronics Case Study

The first assets option to be assessed here is the bond issued by the Qatar Modern Electronics Company. The company issued the bond during the year 2016 and it is due to mature by the year 2025. The bond was issued for a value of 42 million dollars 10% bond as a long-term investment. The bonds are semi-annual in nature and the market yield was 8% for the bonds that are similar in structure and other demand factors. The second investment option to be assessed here is the bond issued by the Qatar International Trade Company. The company issued the bond during the same year as Qatar Modern Electronics but it is due to mature by the year 2030. The bond was issued for a value of 42 million dollars 10% bond as a long-term investment. The bonds are semi-annual in nature and the market yield was 12% for the bonds that are similar in structure and other demand factors. For the first bond, the market yield is lower than the returns as interest rates, therefore we have to pay a premium of 2%. However, for the second options, the bond rates are lesser than the yield and it indicates that that we are receiving discounts. The assumption for the first bond issued by Qatar Modern Electronics Company is that, it will be sold by the end of the year 2022 for $ 42,250,000. The assumption made for the second bond issued by Qatar International Trade Company is that the bond will be sold by the end of year 2027 for $53,750,000.

The present value of the single cash flow is calculated with the following formula

.

The calculation process of interest payment, interest revenue, discount amortization or premium, unamortized discount or premium, and carrying value are as follows. The interest payment is measured by multiplying the yield with principal amount. For the interest revenue, the measurement is carried out with multiplying the carrying value with interest rate provided by the bond, the discount amortization or premium is measured with deducting amount of payment and bond interest expenses. To measure the unamortized discount or premium the prior payment unamortized discount is deducted by the current discount amortized, and the carrying value is measured by deducting the previous year carrying balance and current discount amortized. 

option-1

option-2

Year-1

-42

-55

Year-2

3.71

5.81

Year-3

3.67

5.85

Year-4

3.62

5.89

Year-5

3.57

5.95

Year-6

3.52

6

Year-7

3.47

6.06

Year-8

3.41

6.14

Year-9

42.25

6.22

Year-10

6.3

Year-11

6.4

Year-12

6.51

Year-13

53.75

IRR

7.8%

10.4%

The internal rate of return of the firm is measured with the help of the following formula:

The IRR of both investments are considered for the analysis here to make an informed decision about both the assets. The yearly revenue is considered for both investment options. For the first option, the IRR of the asset is 7.8% and the for the second asset option, the IRR is at 10.4%. Therefore, the bonds issued by Qatar International Trade Company is a much better option than the bonds issued by Qatar Modern Electronics Company. Therefore, the investor should be recommended to buy the bonds provided by the Qatar International Trade company.

 In 1.1.2016 Qatar Modern Electronics Company issued a 42 million dollars 10% bond as a long term investment. Assume that Al Barakah management has the intent and the positive ability to keep these bonds until maturity (December 31, 2025). For bonds of similar risk and maturity, the market yield was 8%. Interest is received semi-annually on June 30 and December 31 for all the years, till maturity.

Number

Period

Interest Payment

Interest Revenue

Discount Amortization Or Premium

Unamortized Discount Or Premium

Carrying Value

0

2016

4.44

1

2016 H1

2.10

1.86

0.24

4.20

46.44

2

2016 H2

2.10

1.85

0.25

3.95

46.19

3

2017 H1

2.10

1.84

0.26

3.68

45.94

4

2017 H2

2.10

1.83

0.27

3.41

45.68

5

2018 H1

2.10

1.82

0.28

3.13

45.41

6

2018 H2

2.10

1.80

0.30

2.83

45.12

7

2019 H1

2.10

1.79

0.31

2.52

44.83

8

2019 H2

2.10

1.78

0.32

2.21

44.52

9

2020 H1

2.10

1.77

0.33

1.87

44.20

10

2020 H2

2.10

1.75

0.35

1.53

43.87

11

2021 H1

2.10

1.74

0.36

1.17

43.52

12

2021 H2

2.10

1.73

0.37

0.80

43.17

13

2022 H1

2.10

1.71

0.39

0.41

42.79

14

2022 H2

2.10

1.70

0.40

0.00

42.40

Total

29.40

24.96

4.44

In 1.1.2016 Qatar International Trade Company issued a 55 million dollars 10% bond as a long term investment. Assume that Al Barakah management has the intent and the positive ability to keep these bonds till maturity (December 31, 2030). Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 12%. Interest is received semi-annually on June 30 and December 31 for all the years, till maturity.

Number

Period

Interest Payment

Interest Revenue

Discount Amortization Or Premium

Unamortized Discount Or Premium

Carrying Value

0

2016

-6.62

1

2016 H1

2.75

2.90

-0.15

-6.47

48.38

2

2016 H2

2.75

2.91

-0.16

-6.31

48.53

3

2017 H1

2.75

2.92

-0.17

-6.13

48.69

4

2017 H2

2.75

2.93

-0.18

-5.95

48.86

5

2018 H1

2.75

2.94

-0.19

-5.76

49.04

6

2018 H2

2.75

2.95

-0.20

-5.56

49.24

7

2019 H1

2.75

2.97

-0.22

-5.34

49.44

8

2019 H2

2.75

2.98

-0.23

-5.11

49.66

9

2020 H1

2.75

2.99

-0.24

-4.87

49.89

10

2020 H2

2.75

3.01

-0.26

-4.61

50.13

11

2021 H1

2.75

3.02

-0.27

-4.33

50.39

12

2021 H2

2.75

3.04

-0.29

-4.05

50.66

13

2022 H1

2.75

3.06

-0.31

-3.74

50.95

14

2022 H2

2.75

3.08

-0.33

-3.41

51.26

15

2023 H1

2.75

3.10

-0.35

-3.07

51.58

16

2023 H2

2.75

3.12

-0.37

-2.70

51.93

17

2024 H1

2.75

3.14

-0.39

-2.31

52.30

18

2024 H2

2.75

3.16

-0.41

-1.90

52.68

19

2025 H1

2.75

3.19

-0.44

-1.47

53.09

20

2025 H2

2.75

3.21

-0.46

-1.01

53.53

21

2026 H1

2.75

3.24

-0.49

-0.52

53.99

22

2026 H2

2.75

3.27

-0.52

0.00

54.48

Total

60.50

67.12

-6.62

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