QUESTION ONE Lusaka Golf Club is considering two mutually exclusive new product launch projects. The golf dub's discount rate is 15 percent. Project A: Lusaka GC 05 Professional clubs that will take an initial investment of K450,000 at time , Next five years (1 - 5) years of sales will generate a consistent cash flow of K160,000 per year. Introduction of new product at year 6 will terminate further cash flows from this project Project B: Lusaka GC 10 High end amateur clubs will take an initial investment of 200,000 at time 0. Cash flow at year 1 is K80,000. In each subsequent year cash flow grow at 15 percent per year. Introduction of new product at year 6 will terminate further cash flows from this project. Based on each of the following below, which project should be taken and state the implications of your decision; (1) Payback period? (11) NPV? (iii)IRR? (7 marks) (9 marks) (9 marks) Total (25 marks) QUESTION FIVE Kafue Sugar and Dangote Cement are listed companies on the Lusaka Stock Exchange in Zambia. They have been trading on the exchange for the last five years. The performance of the returns for the last five years to 2013 is shown in the table below. Year Stock A's Returns Stock B's Returns 2009 2010 2011 2012 2013 (18%) 33% 15% (0.5%) 27% (14.5%) 21.8% 30.5% 7.6% 26.3% (1) Calculate the average return that two investors could have earned for Kafue Sugar and Dangote Cement if they held these stocks for the last five years. (6 marks) (ii) Assume that someone held a portfolio of 50 percent in Kafue Sugar and 50 percent in Dangote Cement. What would have been the realized rate of return on the portfolio in each year from 2009 through to 2013? What would have been the average return on the portfolio as a whole during this period? (6 marks) (iii)Calculate the standard deviation of returns for each stock and for the portfolio Interpret the findings to an investor holding such a portfolio (7 marks) (iv)By comparing the coefficient of variation of the two stocks, which of the two stocks has a higher investment risk? Explain why? (marks) Total (25 marks) QUESTION FOUR (1) Zesco Limited is a power utility company in Zambia. Given the following information for Zesco Limited, find the WACC for the company, Zambia's company's tax rate is 35 percent for power utility companies. Debt: 5,000 8 percent coupon bonds outstanding, K1,000 par value, 20 years to maturity, selling for 103 percent of par; Preferred stock: 50,000 shares outstanding, selling for K17.16 and paying a dividend of K1.50; Common stock: 160.000 shares outstanding, selling for K57 per share the beta is 1.10 Market: 7 percent market risk premium and 6 percent Treasury bills rate (17 marks) (ii) Capital markets play an important role in our financial system and the economy as a whole. What capital markets do we have in Zambia and how do they operate? How do capital market operations assist the economic development of a country? (8 marks) Total (25 marks)