FIN2603 ASSIGNMENT 2 DUE 22 SEPTEMBER 2024

1. UNISA
2. 2024
3. FIN2603-24-S2
4. Assessment 2



Quiz

Assessment 2
Open course index
Started on Friday, 23 August 2024, 9:04 PM
State Finished
Completed on Friday, 23 August 2024, 10:11 PM
Time taken 1 hour 6 mins
Question 1
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Question text
Green Hill Ltd has made an initial investment of R500 000 in a new project. Due to unfortunate
miscalculations, an additional R100 000 had to be invested to successfully start up the project. The
cost of capital is 12%. The investment is expected to generate the following cash inflows over the
next five years:

Year 1: R 80 000
Year 2: R 85 000
Year 3: R150 000
Year 4: R140 000
Year 5: R300 000

The IRR is ...; therefore, the investment should ...


a.
12.34%; be undertaken.

b.
6.60%; not be undertaken.

c.
8.23%; not be undertaken.

d.
15.67%; be undertaken.

Question 2
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Clearwater Ltd. has determined its optimal capital structure, which comprises the following:

FORM OF CAPITAL WEIGHT AFTER-TAX COST
Long-term debt 70% 4%
Preference shares 20% 13%
Ordinary shares 10% 10%

The weighted average cost of capital is ...


a.
9.1%

b.
8.4%

c.
6.4%

d.
5.3%

Question 3
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Blue Bay Ltd. has made an initial investment of R 500 000 in a new project. The firm’s cost of capital
is 12%. The investment is expected to generate the following cash inflows over the next five years:
Year 1: R 50 000
Year 2: R 60 000
Year 3: R 150 000
Year 4: R 140 000
Year 5: R 500 000

The profitability index (PI) is ... ; therefore, the investment should ...


a.
1.14; be undertaken.

b.
1.14; not be undertaken.

c.
1.29; not be undertaken.