account when determining the optimal cycle? other factors should the company take into (5 marks) Magana is a medium-sized, all equity-financed, unquoted company which specializes in the development and production herbal concoctions to cure colds and flu. Its small but ingenious R & D team has recently made a technological breakthrough which has revealed a number of attractive investment opportunities. It has applied for patents to protect its rights in all these areas. However, it lacks the financial resources required to exploit all of these projects, whose required outlays and post-tax NPVs are listed in the table below. Magana's managers consider that delaying any of these projects would seriously undermine their profitability, as competitions bring forward their own new developments. All projects are thought to have a similar degree of risk Project Required outlay NPV Sh. Sh. 1 son non 650 000 Project Required outlay NPV Sh. Sh. A 650,000 500,000 B 1500,000 1200.000 2000,000 800,000 4000,000 800,000 D 300,000 E 1200,000 The NPVs have been calculated using as a discount rate the 18% post-tax rate of return which Magana requires for risky R&D ventures. The maximum amount available for this type of investment is Sh 4000,000, corresponding to Magana's present cash balances, built up over several year's profitable trading Projects A and Care mutually exclusive and no project can be sub-divided. Any unused capital will either remain invested in short-term deposits or used to purchase marketable securities, both of which offer a return well below 18% post tax Required: (1) Advise Magana, using suitable supporting calculations, which combination of projects should be undertaken in the best interests of shareholders, and (1) Suggest what further information might be obtained to assist a fuller analysis (10marks) (b) Assume all things are held constant other than the item in question, for each of the companies below: A company with a large proportion of insader ownershup all of whom are high-income individuals (11) A growth company with an abundance of good investment opportunities (u) A company experiencing ordinary growth that has high liquidity and much unused borrowing capacity (iv) A dividend paying company that experiences an unexpected drop in earnings from a trend ( A company with volatile earnings and high business risk Required: Explain whether or not you would expect each company to have a medium/high or a low dividend payment ratio and the reasons for such categorisation (5 marks) QUESTION TWO