Assume that you are a new analyst hired to evaluate the capital budgeting projects of the company which is considering investing in two CPEC projects, “Expansion Zone North” and “Expansion Zone East”. The initial cost of each project is Rs. 10,000. Company discount all projects based on WACC. Further, all the projects are equally risky projects and the company uses only debt and common equity for financing these projects. It can borrow unlimited amounts at an interest rate of rd 10% as long as it finances at its target capital structure, which calls for 50% debt and 50% common equity. The dividend for next period is $2.0, its expected that they will grow at the constant growth rate of 8%, and the company’s common stock sells for $20. The tax rate is 50%.

The cash flows of both the projects are given in table below:

Carefully analyze the above table and answer the following questions in detail.

1. Calculate the weighted average cost of capital for this firm? (2.5 marks)
2. Compute each project’s IRR, NPV, payback, MIRR, and discounted payback. (2.5 Marks)
3. Which project(s) should be accepted if they are mutually exclusive? Explain (1.5 Marks)
4. Which project(s) should be accepted if they are independent? Explain (1.5 Marks)

Bank of Detroit has estimated that its inventory of 5 million euros is subject to market risk. The spot exchange rate is €1=$1.40. Over the past six months, the spot exchange rate has a mean 3 basis points and a standard deviation 60 basis points. Determine the bank's DEAR for this € position using a 99 percent confidence level.

find the price of a bond when coupon rate 2.6%, 3% Market rate APR for 10 years semi-annually. assume principal is $1000. please show all working and explain as you go.

The Ajax Corporation manufactures compressors for commercial air conditioning systems. A new compressor design is being evaluated as a potential replacement for the most frequently used unit. The new design involves major changes that have the expected advantage of better-operating efficiency. From the perspective of a typical user, the new compressor would have an increased investment of RM8,600 relative to the present unit, and an annual expense saving dependent upon the extent to which the design goal is met in actual operations.

Estimates by the multidisciplinary design team of the new compressor achieving four levels (percentage%) of the efficiency design goal, the probability and annual expense saving at each level are shown in Table Q4(b).

Based on a before-tax analysis (MARR = 18% per year, analysis period = 6 years, and salvage value = 0) and E(PW) as the decision criterion, is the new compressor design economically preferable to the current unit? Provide a single-state decision tree diagram with PW values for each level for the design alternatives.

Jadual S4(b)/Table Q4(b)

With an appropriate example, explain how investors by engaging in a future contract able to protect their investments from price fluctuation?

Jacob Ladders has forecast 2019-2020 sales as follows:

The unit selling price is $10. Each quarter's ending inventory is to be 20% of the following quarter's budgeted sales.
Required: Prepare the production budgets for the first three quarters of 2019-2020.

Background: Metallgesellschaft AG was formerly one of Germany's largest industrial conglomerates based in Frankfurt. It had over 20,000 employees and revenues in excess of 10 billion US dollars. It had over 250 subsidiaries specializing in mining, specialty chemicals (Chemetall), commodity trading, financial services, and engineering (Lurgi). In 1993, the company lost 1.3 billion dollars suffering from flawed long hedge strategy in near term futures contracts that was meant to protect against forwarding sales commitments. A fall in spot prices forced margin calls for the company and the contracts were closed at a loss. Subsequently, the spot price increased and the company suffered even greater losses covering its customer commitments. It is debated whether the company was speculating after unwinding the long futures hedge since they became essentially exposed or naked against their forward customer commitments. – from Wikipedia [https://en.wikipedia.org/wiki/Metallgesellschaft]

The following illustrates how important it is to consider the tailing factor in taking a correct hedge strategy. 0.5 marks for filling each blank.

Suppose the current spot price is $3. With 50 percent of the probability, the spot price will increase or decrease by 1 dollar for the first year and then remain the same as shown in the graph below.


Please answer the following questions.

1. If the annual discrete compounding risk-free rate is 10%, and the cost of carrying offsets the convenience yield exactly, then the future price is equal to the spot price. Please explain. [1 mark]

Transcript:
QUESTION THREE The following list of balances has been extracted from the financial records of Pemba # Plc as at 31 December 2018: Details Amount (K) Sales 11,178,000 Purchases 7,625,000 Inventory at 1 January 2018 850,000 Administrative salaries 620,000 Selling and distribution wages 400,000 Rent, rates and insurance 219,000 Telephone expenses 210,000 Advertising 175,000 Debenture interest paid 35,000 Heat and light 213,000 Bank overdraft interest 35,000 Audit fees 91,000 Ordinary shares of 50 ngwee each 1,200,000 Retained profits at 1 January 2018 680,000 Bank overdraft 430,000 10% Debentures 2030 700,000 Property at cost 1,900,000 Depreciation of property at 1 January 2018 250,000 Machinery at cost 1,500,000 Depreciation of machinery at 1 January 2018 450,000 Motor vehicles at cost 480,000 Depreciation of motor vehicles at 1 January 2018 80,000 Trade receivables 960,000 Trade payables 345,000 Additional information: (0) The closing inventory at 31 December 2018 was valued at K935, 000. (ii) Depreciation is to be charged on the following bases: Property 2% of cost Machinery 10% of cost Motor vehicles 20% of reducing balance (iii) Electricity used in the year but not paid for was K3,000. (iv) Debenture interest unpaid must be provided for, as well as a tax liability of 500, 000 (v) The annual insurance policy of K90,000 was paid in full to 30 June 2019. Required: (a) Prepare the income statement of Pemba Plc for the year ended 31st December 2018 (b) Prepare the statement of financial position of Pemba Plc at 31st December 2018.