ific intention to obtain the gains if the value of the investment appreciates in the future. Security portfolios I and II are held at the end of Que-B Bhd’s first year of operations and are shown in the following table:

ific intention to obtain the gains if the value of the investment appreciates in the future. Security portfolios I and II are held at the end of Que-B Bhd’s first year of operations and are shown in the following table:

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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on this repurchase agreement. (a) You are investing GHS100,000 in an investment portfolio made up of a risky ass and a T/Bill. The expected return of the risky asset is 11% and its standard deviation is 20% The rate of return of the T/Bill is 3% (a) Compute what percentages of your funds must be invested in the risky asset and the risk-free asset so that the expected return of your investment portfolio is 8% (b) Compute what percentages of your funds must be invested in the risk-free asset and the risky asset to form a portfolio with a standard deviation of 8%.
The table below is a forecast of annual net cashflows on a business project with a five-year lifespan. Year 1 2 3 4 5 Net Cash Flow -£50,000 £185,000 £370,000 £450,000 £110,000 An investment analyst, having assessed the risks, suggests an annual cost of capital for the project of 8.25%. Required: a) Calculate the present value of the forecast net cash flows based on the minimum required return. b) The project requires an initial investment of £800,000. Calculate the net present value. c) Outline the case for using the net present value principle as an investment decision-making tool and explain why investors should accept or reject the above investment opportunity.
Consider the return of investment as given in the following table: Year 2016 2017 2018 2019 2020 Amount (RM) 5000 5175 5394.94 5705.15 6047.46
A company is considering two mutually exclusive investments with a discount rate of 10%.The cash flows of the projects over time follows: Time Project A Project B 0 - RM300,000 - RM405,000 1 - RM387,000 RM134,000 2 - RM193,000 RM134,000 3 - RM100,000 RM134,000 4 RM600,000 RM134,000 5 RM600,000 RM134,000 6 RM850,000 RM134,000 7 - RM180,000 RM0 Question: The company does not want to issue new share capital or debentures to financethis project. Recommend three (3) appropriate financing methods for this project.Provide support for your recommendations.
P12-20 RISK-ADJUSTED DISCOUNT RATES: BASIC Country Wallpapers is considering investing in one of three mutually exclusive projects, E, F, and G. The firm's cost of capital, r, is 10%, and the risk-free rate, RF, is 2%. The firm has estimated each project's cash flow and each project's beta, as shown in the following table. Excel Initial investment (CF) Year (t) 1 2 3 4 Beta E Where -$15,000 $6,000 6,000 6,000 6,000 RF B; RADR, 1.80 Project () F -$11,000 Cash inflows (CF,) $6,000 4,000 5,000 2,000 1.00 G a. Find the NPV of each project, using the firm's cost of capital. Which project is preferred in this situation? risk-free rate beta of project; T'm risk-adjusted discount rate for project ; expected return on market portfolio Substitute each project's beta into this equation to determine its RADR. -$19,000 b. The firm uses the following equation to determine the risk-adjusted discount rate, RADRj, for each project j: RADR, RF + B₂ × (rm RF) $ 4,000 6,000 8,000 12,000 0.60 2% 10% c. Use…
A company is considering two mutually exclusive investments with a discount rate of 10%.The cash flows of the projects over time follows: Time Project A Project B 0 - RM300,000 - RM405,000 1 - RM387,000 RM134,000 2 - RM193,000 RM134,000 3 - RM100,000 RM134,000 4 RM600,000 RM134,000 5 RM600,000 RM134,000 6 RM850,000 RM134,000 7 - RM180,000 RM0 A. What is the Net Present Value (NPV) for each project? B. Since the projects are mutually exclusive, which project would you recommend?Justify your recommendation. C. Suppose that the projects are independent projects, which project (s) would yourecommend? Justify your recommendation.
Calculations to determine which – if any – additional investment opportunities should be undertaken. 1. If the projects are divisible 2. If the projects are not divisible .
An investment advisor has recommended a R50,000 portfolio containing assets R, J, and K; R25,000 will be invested in asset R, with an expected annual return of 12 percent; R10,000 will be invested in asset J, with an expected annual return of 18 percent; and R15,000 will be invested in asset K, with an expected annual return of 8 percent. What is the expected annual return of this portfolio? What is the correct answer? A. 12.01% B. 12.00% C. 11.98% D. 12.93%
c. A company is planning to invest in a project over a 5-year period, but wants to know its financial implications. It expects the cash in-flow return on the investment to steadily increase over the 5 years. Using the information below, help determine the Total Net Cash Flows, the Net Present Value and the estimated Payback Period. Note: Estimate the payback period to the nearest year. Discount Rate 12% Investment Project Cash Flow Total Net Cash Flow Initial Investment $ (5,000) ? Year 1 $ 800 ? Year 2 $ 900 ? Year 3 $ 1,500 ? Year 4 $ 1,800 ? Year 5 $ 3,200 ? NPV of investment ? Estimated Payback Period
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Payback Period, IRR, and Minimum Cash Flows The management of Mesquite Limited is currently evaluating the following investment proposal: Year 4 Initial investment $260,000 Net operating cash inflows Time 0 Year 1 Year 2 Year 3 -- $100,000 $100,000 $100,000 $100,000 (a) Determine the proposal's payback period. 2.6 years % (b) Determine the proposal's internal rate of return. (Refer to Appendix 24B if you use the table approach.) (c) Given the amount of the initial investment, determine the minimum annual net cash inflows required to obtain an internal rate of return of 16 percent. Round the answer to the nearest dollar. $
Consider the case of two financial assets and three market conditions (states). The tablebelow gives the respective probability for each market condition and the return of each assetin each one of them. Market Conditions State Recession Normal Expansion Probability of state 30% 40% 30% Return of asset A -30% 20% 55% Return of asset B -10% 70% 0% Consider the portfolio with 50% investment in each of the two assets above. Calculatethe expected return and the standard deviation of the portfolio.