1. Natco has the following investment portfolio.

Expected return Investment Beta

Investment A 15% P100,000 1.2 Investment B 10% P300,000 -0.5 Investment C 8% P200,000 1.5 Investment D 8% P100,000 -1.0

What is the expected return of the portfolio? If the management decided to sell one of the investments, which one should be selected?

2.

2. A company has P1,000,000 in shareholders equity and P2,000,000 in debt equity (8% bonds). Its after-tax weighted average cost of capital is 12%, but it uses 15% as the hurdle rate in capital budgeting decisions. During the past year, its operating income before tax and interest was P500,000. Its tax rate is 40%. What is the companys cost of equity capital?