Question 3 (20) Fox Limited is evaluating two possible investment projects. You are given the following information about the two investments Probability 0.25 0.15 0.30 0.20 0.10 Investment A 15% 24% 21% 5% 12% Investment B 18% 20% 12% 22% 8% Required: 3.1 3.2 3.3 3.4 (2) Calculate the expected return of each of the investments Calculate the standard deviation for each of the 2 assets. Which asset is preferable using the mean variance rule and why? Suppose you advise Fox Limited to invest 40% in Investment A and 60% in Investment B. What will be the expected return on Fox Limited's investments? Given 3.4 above what will be the standard deviation of Fox Limited's investments? Has Fox Limited enjoyed any benefits from diversification and why? (2) 3.5 (5) (3) 3.6 Question 4 20) Mandia Limited has the following Capital structure. Debt Preference Shares Common Stock 300 000 100 000 600.000 1 000 000 The cost of the capital sources is as follows: Cost of Equity Yield on Preference Shares After tax Cost of Debt 23% 20% 17% The market values of the sources of capital are given as follows as appraised by a valuer: Debt Preference Shares Common Stock 245 000 88 000 760 000 1093 000 Required: 4.1 4.2 4.3 Calculate WACC using book values. Calculate WACC using market values.. Explain the shortcomings of using WACC in capital budgeting analysis