Question 2 (22 marks) Halo Ltd is attempting to measure the riskiness of two projects which have the following cash flows in different states of the economy. Project Project Probability State NS 000 2 3 N$ 000 950 850 450 350 250 N$ 000 950 550 450 350 150 5 Required: a) Establish, using the standard deviation of cash flows as a measure of risk, which project is riskier. (16 marks) b) Calculate the co-efficient of variation of cash flows as a measure of risk, which project is riskier. (4 marks) c) Explain which measure of risk you would prefer. (2 marks) Question 3 (14 marks) In Namibia the market premium is estimated to be 5% and the yield on government bonds is currently at 8%. Pick Ltd has an equity beta of 0.95. Pick has issued bonds with a par value of N$100 which are currently priced at N$96.00. The annual coupon rate is 9%. The maturity date is in five years' time and the corporate tax is 30%. Interest is payable semi-annually in arrears. The company has just paid the coupon interest for the current six month perioda Required: a) Calculate Pick Ltd.'s cost of equity based on CAPM. (2 marks) b) Calculate the after tax cost of debts. (6 marks) c) What is the weighted average cost of capital (WACC) if the target debt-equity ratio is 25%? (6 marks) The end. Page 11 of 11