Please assist with assignment questions- urgent

Assignment 1

Question 2 [15 Marks]

Haley's Graphic Designs Inc IS considering two mutually exclusive projects Both projects require an initial Investment of RI 0,000 and are typical average-risk projects for the company Project A has an expected life of 2 years With after-tax cash Inflows of R6,000 and R8,000 at the end of Years 1 and 2, respectively Project B has an expected life of 4 years With after-tax cash Inflows of R4,000 at the end of each of the next 4 years The company's WACC IS 10%

Required:

2.1 If the projects cannot be repeated, which project should be selected If Haley uses NPV as Its criterion for project selection(6).

2.2 Assume that the projects can be repeated and that there are no anticipated changes In the cash flows Use the replacement chain analysis to determine the NPV of the project selected (5)

2.3 Make the same assumptions as in part 2 2 using the equivalent annual annuity (EAA) method, what is the EAA of the project selected (4)

Question 3 [18 Marks]

The share price of Company X has a 10% expected return, a beta coefficient of 0. 9, and a 35% standard deviation of expected returns. The share price of Company Y has a 12 5% expected return, a beta

coefficient of 1. 2, and a 25% standard deviation. The risk-free rate is 6%, and the market risk premium

Required:

3.1 Calculate each share's coefficient of variation

(2)

3.2 Which share is riskier for a diversified Invest

(3)

3.3 Calculate each shares' required rate of return

(2)

3.4 On the basis of the two shares' expected and required returns, which share would be more

attractive to a diversified Investment(4)

3.5 Calculate the required return of a portfolio With R7,500 invested in Company X and R2, 500

invested In Company Y(4)

2.6If the market risk premium Increased to 6%, which of the two companies would have the larger

Increase to its required return?(3)

Question 4 [15 Marks]

Apilado Appliance Corporation IS considering a merger With the Vaccaro Vacuum Company Vaccaro is a publicly traded company, and Its current beta is 1.30 Vaccaro has been barely profitable, so It has paid an average of only 20% in taxes during the last several years, In addition, It uses little debt, having a debt ratio of just 25%. If the acquisition were made, Apilado would operate Vaccaro as a separate, wholly owned subsidiary Apilado would pay taxes on a consolidated basis, and the tax rate would, therefore, increase to 35% Apilado also would Increase the debt capitalisation. In the Vaccaro subsidiary to 40% of assets, which would Increase Its beta to 1.47 Apilado's acquisition department estimates that Vaccaro, If acquired, would produce the following cash flows to Apilado's shareholders (In millions of Rands)

Year 1: R 1 30

Year 2: R1 50

Year 3: R1 75

Year 4: R2 00

Year 5 and beyond : Constant growth at 6%

These cash flows Include all acquisition effects Apilado's cost of equity is 14%, Its beta is 1. 0, and Its cost of debt is 10% The risk-free rate is 8%

Required:

4 1What discount rate should be used to discount the estimated cash flows.

2.2 what is the rand value of Vaccaro to Apilado.

Vaccaro has 12 million common shares outstanding What is the maximum price per share that Apilado should offer for Vaccaro. If the tender offer is accepted at this price, what Will happen to Apilado's share price(6)

Question 6 [13 Marks]

Project Alpha requires an Initial outlay of R35,000 and results in a Single cash Inflow of R56,367 50 at the end of five years

Required:

6 1 If the cost of capital 's 8%, what are Alpha's NPV and PP Is the project acceptable under each

of these techniques(5)

What are Alpha's NPV and PI If the cost of capital is 12percent the project acceptable under this condition0(5)

What is Alpha's payback period? Does payback make much sense for a project like Alpha?

Motivate why(3)

Question 7 [18 Marks]

The Wall Company has 142,500 ordinary shares outstanding that are currently selling at R28 63 It has 4,530 bonds outstanding that Will mature in 20 years. They were issued at a par value of

RI ,000 paying a coupon rate of 6%. Comparable bonds now yield 9%. Wall's R 100 par value preferred share was Issued at 8% and is now Yielding 11%, 7,500 shares are outstanding

Required:

Develop Wall's market value-based capital structure