gistfile1.txt

{
 "metadata": {
  "name": "Finance"
 },
 "nbformat": 3,
 "nbformat_minor": 0,
 "worksheets": [
  {
   "cells": [
    {
     "cell_type": "heading",
     "level": 3,
     "metadata": {},
     "source": "Question 1"
    },
    {
     "cell_type": "code",
     "collapsed": false,
     "input": "rate = 0.04\nperiods = 12\nmath.pow(1 + rate / periods, periods) - 1",
     "language": "python",
     "metadata": {},
     "outputs": [
      {
       "output_type": "pyout",
       "prompt_number": 115,
       "text": "0.040741542919790596"
      }
     ],
     "prompt_number": 115
    },
    {
     "cell_type": "heading",
     "level": 3,
     "metadata": {},
     "source": "Question 2"
    },
    {
     "cell_type": "markdown",
     "metadata": {},
     "source": "We can apply tax before or after discounting, it doesn't matter because the tax rate is constant\n\nOption 1 will give us exactly 500k after tax, lets see what option 2 gives"
    },
    {
     "cell_type": "code",
     "collapsed": false,
     "input": "tax = 0.5\ninterest = 0.03\nop2 = np.array([120000] * 10) * tax\nnpv(interest, op2)",
     "language": "python",
     "metadata": {},
     "outputs": [
      {
       "output_type": "pyout",
       "prompt_number": 123,
       "text": "511812.17020654969"
      }
     ],
     "prompt_number": 123
    },
    {
     "cell_type": "markdown",
     "metadata": {},
     "source": "So the NPV of option 2 is 512k. This is the better option"
    },
    {
     "cell_type": "heading",
     "level": 3,
     "metadata": {},
     "source": "Question 3"
    },
    {
     "cell_type": "markdown",
     "metadata": {},
     "source": "Numpy makes question 3 trivial, just give it the cash flows"
    },
    {
     "cell_type": "code",
     "collapsed": false,
     "input": "project1 = [-50, 18, 18, 18, 18]\nproject2 = [-75, 26, 26, 26, 26]\n\nprint np.irr(project1), np.irr(project2)",
     "language": "python",
     "metadata": {},
     "outputs": [
      {
       "output_type": "stream",
       "stream": "stdout",
       "text": "0.163674891689 0.144911895394\n"
      }
     ],
     "prompt_number": 128
    },
    {
     "cell_type": "heading",
     "level": 3,
     "metadata": {},
     "source": "Question 4"
    },
    {
     "cell_type": "markdown",
     "metadata": {},
     "source": "Question 4 is very badly worded. My answer was to simply calculate the NPV of each given stream"
    },
    {
     "cell_type": "code",
     "collapsed": false,
     "input": "project1 = [-50, 18, 18, 18, 18]\nproject2 = [-75, 26, 26, 26, 26]\nrate = 0.1\nprint np.npv(rate, project1), np.npv(rate, project2)",
     "language": "python",
     "metadata": {},
     "outputs": [
      {
       "output_type": "stream",
       "stream": "stdout",
       "text": "6.41598003117 6.74227418644\n"
      }
     ],
     "prompt_number": 130
    },
    {
     "cell_type": "markdown",
     "metadata": {},
     "source": "Turns out when they say year 1, they actually mean year 0, so the initial cash outflows are **immediate**. What they really mean is this"
    },
    {
     "cell_type": "code",
     "collapsed": false,
     "input": "project1 = [18, 18, 18, 18]\nproject2 = [26, 26, 26, 26]\nrate = 0.1\nprint np.npv(rate, project1) - 50, np.npv(rate, project2) - 75",
     "language": "python",
     "metadata": {},
     "outputs": [
      {
       "output_type": "stream",
       "stream": "stdout",
       "text": "7.05757803429 7.41650160508\n"
      }
     ],
     "prompt_number": 132
    },
    {
     "cell_type": "code",
     "collapsed": false,
     "input": "",
     "language": "python",
     "metadata": {},
     "outputs": []
    }
   ],
   "metadata": {}
  }
 ]
}