4 (Based on Appendix I to this chapter.) Ron Bratt decides to commence trading as a sportswear retailer, with initial capital of £6,000 in cash. The capital market and investment opportunities available are shown below:

You are required to calculate:

(a) How much the firm should invest in real assets.

(b) The market rate of interest for the business.

(c) The average rate of return on investment.

(d) The net present value of the investment.

(e) The value of the firm after this level of investment.

(f) Next year’s dividend if Bratt only requires a current dividend of £3,000.

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Year 1 (2000) 0 5 10 7 4 6 8 Now (000)