1. Mr. Oriento of Zed Ltd. Has to make a choice between two mutually exclusive investments:

Cash flows (Shs. 000)
	T0	T1	T2	IRR
Alpha	-400	250	300	23
Omega	200	140	179	36

The opportunity cost of capital is 9% per annum. Mr. Oriento wants to invest in Omega which has the higher IRR.

Do you agree with Mr. Orientos choice? Show appropriate computations. (5 marks)

2. Pine Company Ltd is planning to market a new produce, New P. To finance the venture, Pine proposes to have a rights issue at Shs. 10/= of one new share for each two shares held. The company currently has 100,000 shares outstanding with a market price of Shs. 40/= per share. Assume that the new funds are invested to earn the same rate of return as Pines other assets.

Required:

1. Share price after 100% subscription of the issue (6 marks)
2. Value of the right to buy one share. (3 marks)