Question 2 (22 marks) Halo Ltd is attempting to measure the riskiness of two projects which...
In Namibia the market premium is estimated to be 5% and the yield on government bonds is currently at 8%. Pick Ltd has an equity beta of 0.95. Pick has issued bonds with a par value of N$100 which are currently priced at N$96.00. The annual coupon rate is 9%. The maturity date is in five years’ time and the corporate tax is 30%. Interest is payable semi-annually in arrears. The company has just paid the coupon interest for the...
QUESTION 1 (15 MARKS) Jeanne is attempting to evaluate two possible portfolios consisting of the same five assets but held in different proportions. She is particularly interested in using beta to compare the risk of the portfolio and, in this regard, has gathered the following data: Portfolio Weights (%) Asset Beta Portfolio Portfolio B 1.30 0.70 1.25 1.10 0.90 20 NO 10 10 40 Total 100 100 Required: a) Calculate the betas for portfolios A and B. marks) (CL01:PLO2:01) Compare...
Question 1 (25 marks) King Ltd and Queen Ltd are both listed on the New York Stock Exchange having the same business risk. The expected return on the S&P 500 Index is 10% and the risk-free rate is 6%. These two firms are identical in all aspects except for their capital structure. Queen is an all-equity firm. King has both perpetual debts and common stocks. It has a debt to equity ratio of 1:4 and an equity beta which is...
(b) A company is evaluating between two mutually exclusive projects. The required initial investments and the expected net cash flows from the projects are as follows: Project 1 Project 2 0 -$4,000,000 - $4,000,000 1 $1,900,000 $1,100,000 2 $2,255,000 $1,900,000 3 $2,000,000 $2,000,000 The company accepts any project for which the payback period is within 3 years, Which of these projects should be chosen using the payback period as the capital budgeting measure? (3 marks) An Australian multinational company is...
Question 2 (25 marks) Eliza Mok spots two bonds in the market in which she is interested. The first bond is a 20-year bond issued by Orange Ltd two years ago with a coupon rate of 4.9%. The second bond is a 10-year bond issued by Pear Ltd one year ago at a coupon rate of 5.1%. Both bonds have a par value of $1,000 and make semiannual payments a If the yield to maturity (YTM) on the Orange bond...
Tutorial Question Indongo Limited is considering investing N$100 000 in one of two projects. Both projects have a life of one year only, and potential return is dependent on the following economic states:State 1 State 2 State 3Probability 0.4 0.3 0.3Net cash return: Project A N$35 000 N$20 000 N$0Net cash return: Project B N$5 000 N$30 000 N$30 000Net cash return: Existing activities -N$20 000 N$100 000 N$300 000The company has a current market value of N$1 million. The Directors of Indongo Limited...
Question: Cost of Capital Cloudstreet Ltd is an Australian firm which is publicly-listed on the ASX. The co... Cost of Capital Cloudstreet Ltd is an Australian firm which is publicly-listed on the ASX. The company has a long term target capital structure of 60% Ordinary Equity, 10% Preference Shares, and 30% Debt. All of the shareholders of Cloudstreet are Australian residents for tax purposes. To fund a major expansion Cloudstreet Ltd needs to raise a $120 million in capital from...
Question 5 (14 marks) The Basket Weavers Company has 100,000 units of semi-annual coupon, 20-year bonds outstanding that are currently selling at par value ($1000). The coupon rate of the bond is 7.47%. The company also has 1 million shares of 10.5 percent preferred stock outstanding and 5 million shares of common stock outstanding. The preferred stock has a par value of $100 and is selling for $60 per share. The common stock has a beta of 1.5 and is...
Question 5 (14 marks) The Basket Weavers Company has 100,000 units of semi-annual coupon, 20-year bonds outstanding that are currently selling at par value ($1000). The coupon rate of the bond is 7.47%. The company also has 1 million shares of 10.5 percent preferred stock outstanding and 5 million shares of common stock outstanding. The preferred stock has a par value of $100 and is selling for $60 per share. The common stock has a beta of 1.5 and is...
put. (JUWS Question two (40%) . MTP Lid is a newly established firm in Tanzania which produces and sells Mango juice all over the country. The directors of the company are planning to expand the company capacity by opening another processing center in Arusha region. According to the market analysis as well as financial analysis, investing in Arusha is feasible as it will enable the company to capture more market within the country and outside the country. Currently, MTP Ltd...