Question
1-Giving the expected return and the risk of two portfolios, which portfolio (A or B) should you invest in? why? Expected Return Risk () Portfolio
1-Giving the expected return and the risk of two portfolios, which portfolio (A or B) should you invest in? why?
|
| Expected Return | Risk () |
| Portfolio A | 13% | 7% |
| Portfolio B | 16% | 11% |
2-ABC Company has the following list of projects. The company has only $1,500,000 available for investment. Which projects should the company undertake? Why?
| Projects | Initial Investment ($) | NPV |
| A | 750,000 | 75,000 |
| B | 1,000,000 | 250,000 |
| C | 750,000 | 50,000 |
| D | 500,000 | 90,000 |
| E | 500,000 | 100,000 |
3-Giving the following 2 capital structures available to fund a project:
| Capital Structure A |
| Capital Structure B | |||||
| Sources of fund | Weight |
| Source of fund | Weight |
| ||
| Common shares | 25% |
| Preferred shares | 25% |
| ||
| Bonds | 20% |
| Loan | 35% |
| ||
| Retained earnings | 45% |
| Bond | 35% |
| ||
| Loan | 10% |
| Common shares | 5% |
| ||
If both capital structures have WACC of 12.5%, which capital structure you recommend giving that the finance manager is risk seeker (taker)? Why?
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