Calculate and type answer the space provided
SECTION A
Section A: (10%) (5 marks each question). Answer any two questions from a choice of 3 questions. One to two paragraphs for each answer.
| Some of the important criteria that need to be considered when taking some of the important decision to select the one firm over the other is knowledge of the business and technology, the access to the capital, exist strategy, proximity, networking, references, and chemistry. These are some important criteria that need to be considered when making a selection decision of the firm. |
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List and describe each of the three methods used to calculate the cost of ordinary shares.
[Answer here]
SECTION B
Total marks for this section (50%): (10 marks each). Answer any 5 Questions out of 7 questions.
Shares A, B and C have expected returns of 17.12%, 12.62% and 11.34%, respectively, while their standard deviations are 41.54%, 26.55% and 34.63% respectively. If you are considering the purchase of each of these shares as the only holding in your portfolio, which share should you choose?
Sunny Ltd is considering undertaking a project that will produce $14 million of revenue per year. Cash expenses will be $5 million, and depreciation expenses will be $1 million per year. If the firm takes this project, then it will reduce the cash revenues of an existing project by $3 million. What is the free cash flow on the project, per year, assuming a 30% tax rate?
[Answer and show workings here]
= 15/107.14 = 0.14 |
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[Answer and show workings here]
Worth of Healthy Foods = $473,000,000 + plus the present value of the tax shield. |
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[Answer and show workings here]
A recent geological survey has provided good results for gold mining in the Pilbara region in Western Australia and the board of directors are keen to proceed with the development of these mining opportunities.
The initial investment to establish the mine is $475m commencing in 2022.
| Year | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 |
|---|---|---|---|---|---|---|---|
| Revenue | 0 | 0 | $200m | $265m | $355m | 380m | $400m |
| Cash Operating Expenses | $15.5m | 18.8m | $40m | $80m | $100m | $150m | $200m |
* Note the interest on the bonds is a tax deduction for the company. The current tax rate is 30%, the above cost must be adjusted for tax shield.
You are required to:
Determine the amount to be invested now in a sinking fund that will provide the required restoration amount in 2028 if the interest rate on deposits is 6% assume this rate for the 7 years (5 marks)
Your recommendation as to the financial viability of the project and your reasons. (5 marks)
2) Calculate the weighted average cost of capital (10 marks) Answer: WACC = (E / V) × Re + (D / V) × Rd × (1 − Tc) Where WACC is the weighted average cost of capital, V = E + D is the total market value (equity and debt) = 100 million + 300 million = 400 million E/V is the percentage of equity financing = 1/4 3) The discounted cash flow for the project using the weighted average cost of capital (15 marks)
r = 0.06 per year, 5) Your recommendation as to the financial viability of the project and your reasons. (5 |
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[Extra writing/working space if required]
