Question 4 (25 marks)

• a.Explain the concept of time value of money.(6 marks)
• b.Image that you have inherited 20,000. However, you will not receive this money until you become 18 years old, which is in 2 years time. If the interest rate is 8% per annum, what will be the future value of your inheritance in 2 years time? (4 marks)
• c.Chips&Chips Plc is a company using 40% debt and 60% equity to finance its operations. Chip&Chips before tax cost of debt is 6.5%, while the tax rate is 20%. The WACC estimated for the company is 10%. The current risk-free rate is 2%, while the market risk premium is 10%.
  • i.Calculate the beta () of the company. (10 marks)
  • ii.What does the beta () coefficient you calculated tell you about the company? (5 marks)