4. (24 marks). Two firms report the following data: The risk-free rate is 7%, the market risk premium is 7%, the price of XXO is $8 and YOX is $15. (1) Compute the fundamental P/E ratios and market P/E ratios. (2) Classify the shares as either a 'buy' or a 'sell'. [Answer] 5. (20 marks). Calculating rental returns. Isobel recently purchased a rental property for $300,000. She expects that she should be able to charge a rent based on a gross return of 7% p.a. (1) What is the amount of gross rent that Isobel would charge? (2) If lsobel is told that ongoing costs of owning the property (without considering the interest costs on a loan) amount to $3,000 p.a., calculate the return on the net rental income. (3) Assuming Isobel has not borrowed any funds to acquire the property and her marginal tax rate is 30% (ignore Medicare levy), calculate the after-tax return on the net rental income. (4) If, instead, Isobel borrowed $150,000 on interestonly terms to acquire the property and has to pay interest of 7.5% p.a., what is the taxation implication for Isobel? [Answer]