CAT $2$

Question $1$

An investment project has a cost of Shs$12,000,$ payable at the start of the first year of operation. The possible future cash filows arising from the

investment project have the following present values and associated probabilities: PV of Year $1$ cash flow $($Shs$)$ Probability PV of Year $2$ cash flow

$($Shs$)$ Probability $16,0000\mathrm{.}1520,0000\mathrm{.}7512,0000\mathrm{.}60(2,000)0\mathrm{.}25(4,000)0\mathrm{.}25$ What is the expected value of the net present value of the investment

project?

Question $1$Select one:

Shs$76,300$

Shs$11,850$

Shs $28,700$

Shs$11,100$

Question $2$

Question text

A project has the following cashflows

Year $1$Year $2$

CashflowProbabilityCashflowProbability

$60,0000\mathrm{.}350,0000\mathrm{.}3$

$60,0000\mathrm{.}5$

$70,0000\mathrm{.}2$

$80,0000\mathrm{.}460,0000\mathrm{.}3$

$80,0000\mathrm{.}5$

$100,0000\mathrm{.}2$

$100,0000\mathrm{.}380,0000\mathrm{.}3$

$100,0000\mathrm{.}5$

$120,0000\mathrm{.}2$

The projects initial cash outlay is Sh $100,000$ with a cost of capital of $12\%.$ What is the projects expected monetary value $($EMV$)$

Question $2$Select one:

$9,900$

$150,300$

$158,300$

$128,300$

Question $3$

Rick Inc currently has free cash flows of Shs$.5$ million per year and a cost of capital of $12\%.$ Calculate the value of Rick Inc if The free cash flows are

expected to grow at a constant rate of $4\%$ per annum.

Question $3$Select one:

$68$ Million

$41\mathrm{.}67$ Million

$5$ million

None of the above

Question $4$

Question text

Nevers LTD has a cost of capital of $8\%$ and is considering a project with the following 'most$-$likely' cashflows.

YearPurchase costRunning costs savings

$07,000$

$12,0006,000$

$22,5007,000$

What is the sensitivity $($in percentages$)$ of the project to changes in the levels of expected purchase costs