(b) Assess the factors that may influence a company like MEL to value its shares. (5 marks) (c) Advise the board of MEL on the main features of ordinary shares (6 marks) (Total 20 marks) Question 4 Hawaii Corporation Ltd (HCL) is an international company based in United Kingdom and intends to diversify its operations into Uganda. Mr Memphis has been hired to spearhead the process of identifying a viable project. Mr. Memphis identified a project in broadcasting industry and this project is expected to yield an annual income of Shs 2 million for the next five years. The project will also cost a total of Shs 10 million to start and the company's shareholders expect an earning yield of 10% from any project they undertake. Assume that you are Mr Memphis. Required: (a) Using profitability index, evaluate the viability of the project and advise the directors of HCL. (8 marks) (b) Explain to the management of HCL the advantages and disadvantages of profitability index. (6 marks) (c) Compute HCL's internal rate of return (IRR) and explain how management can apply the value in decision making. (6 marks) (Total 20 marks) Question 5 (a) Discuss: (i) the purpose of customer credit rating and show how it is carried out. (7 marks) (ii) how invoice discounting is carried out in management of trade receivables. (6 marks) (b) Explain the benefits of factoring of trade receivables of any organisation you are familiar with. (7 marks) (Total 20 marks) FINANCIAL FORMULAE The capital asset pricing model Er, = Rf + Bi( Rr, - Rf ) Ve The asset beta formula Va(1-T) Ba Ve+ Vid(1-1) * Ve + Va(1-T).Ba Cov(x.y) Correlation coefficient P(x.y) Covariance Cov(x.y) = Ep(x-x) (v-7) Beta of a security B . COV(RA, RM) . (1 6, ) 10m o' (RM) D. (1+g) The Gordon model Po = Tra-8] Gordon's growth approximation g = bre Terminal value TV = FCF (1+g) ( k - g) Purchasing power parity and interest rate parity S1 = S. Itic S1 = So 1 + i The Fisher formula (1 + m) = (1 + r) (1 + i) 2CD Economic order quantity (EOQ) V CH Weighted Average Cost of Capital (WACC) = LV. + V. K . + v. + V.