CF1 Question Two a) Chonglee Investment has the following two investment projects. Its payback cut-off is 3 years. Which should it accept if any? (2 marks) Year -$60,000 -$135,000 30,000 15.000 20,000 30,000 20.000 60,000 10 CO 750.000 You're trying to determine whether or not to expand your business by building a new plant. The plant would cost $14m and be depreciated strict line tore over four years. The net income is estimated as $1.741m, $1.628m, $1.301m and Sim what is the project's average accounting return (AAR)? (3 Marks) You decide to implement new rules on depreciation. You recognise that the building housing the plant is increasing in value so that depreciation of Simper year is appropriate. Does the AAR change? If you require a 20% AAR how is the project affected? (2 Marks) al You are asked to put a value on a bond which promises e t annual coupon payments of 50 and will repay its face value of 1000 at the end of the years. You observe that other similar bonds have yields to maturity of 9 percent 1) How much is this bond worth? 2 marks] *) You are offered the band for a price of E755.5. What yield to maturity does this represent? (2 marks Question three You believe that next year XYZ plic will pay a dividend of 2 on its common stock Thereafter you expect dividends to grow at a rate of 4% a year in perpetuity. If you require a return of 12% on your investment How much should you be prepared to pay for the stock? (2.5 marks) Assuming that the expected stock on at the end of year 5 is 37.6, calculate the return on capital? (2 5 marks)