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Question Two Makunganya Ltd is one of the registered companies in the DSE market. The company has experienced an incre in the market share due to the good performance of its investments. The Finance manager of Makunganya Ltd has presented five options to the Board of Directors on how the Company can expand its investments portfolio and take advantage of the increased market share. The Company has 20,000,000 Tshs available for investments. wling Option 1.Purchase of shares of MOND Ltd- the Shares are currently trading at 40 Tshs per share and the company has just paid a dividend of 3 Tshs per share. The market forecast shows that the MOND LTD dividends growth rate is expected to increase by 20% in each year from its current rate of 10% for the next 3 year-thereafter stabilize at 8% per year. The company required rate of return is 20% Option 2 -Invest in real estate. The finance manager has suggested 4 divisible investments with a useful life of 5 years. The company shall keep the investment for not more than 4 years as per company investment policy and depreciation is charged at straight-line base. The financial forecasts for the 4 Investments are as follows sn Investment Initial capital Annual profit Tax rate Salvage Required rate Before tax (Including value in of return capital the end of gain) 4th year Residential 100,000,000 20,000,000 20% 40,000,000 12% house Garage 80,000,000 15,000,000 32,000,000 10% Supermarket 95,000,000 12,000,000 15% 38,000,000 8% Gas station 50,000,000 10,000,000 18% 20,000,000 7% - Meu Inol len 12% Option 3-Purchase Government Bond - Government Bonds are currently trading at 1,100 Tshs. The bond maturity date 2039 and a stated coupon rate of 8.5%. On January 1, 2019, the bond had 20 years left to maturity, and the market's required yield to maturity for similarly rated debt was 7.5%. & luntal terest 1100x8.5. Required 100 -93.5 OV ZAL-(+7) a. Assess the feasibility of the investment in option 1 (3 Marks) b. Assess the feasibility of the investments in option 2, what is the best combination of investments that the company should consider (3 Marks) C. Assess the feasibility of the investments in option 3 (2.5 Marks) 075 d. What is the best investment option for the company among the three options doove 12.5 Mars 29351-(740-75) Question Two Makunganya Ltd is one of the registered companies in the DSE market. The company has experienced an incre in the market share due to the good performance of its investments. The Finance manager of Makunganya Ltd has presented five options to the Board of Directors on how the Company can expand its investments portfolio and take advantage of the increased market share. The Company has 20,000,000 Tshs available for investments. wling Option 1.Purchase of shares of MOND Ltd- the Shares are currently trading at 40 Tshs per share and the company has just paid a dividend of 3 Tshs per share. The market forecast shows that the MOND LTD dividends growth rate is expected to increase by 20% in each year from its current rate of 10% for the next 3 year-thereafter stabilize at 8% per year. The company required rate of return is 20% Option 2 -Invest in real estate. The finance manager has suggested 4 divisible investments with a useful life of 5 years. The company shall keep the investment for not more than 4 years as per company investment policy and depreciation is charged at straight-line base. The financial forecasts for the 4 Investments are as follows sn Investment Initial capital Annual profit Tax rate Salvage Required rate Before tax (Including value in of return capital the end of gain) 4th year Residential 100,000,000 20,000,000 20% 40,000,000 12% house Garage 80,000,000 15,000,000 32,000,000 10% Supermarket 95,000,000 12,000,000 15% 38,000,000 8% Gas station 50,000,000 10,000,000 18% 20,000,000 7% - Meu Inol len 12% Option 3-Purchase Government Bond - Government Bonds are currently trading at 1,100 Tshs. The bond maturity date 2039 and a stated coupon rate of 8.5%. On January 1, 2019, the bond had 20 years left to maturity, and the market's required yield to maturity for similarly rated debt was 7.5%. & luntal terest 1100x8.5. Required 100 -93.5 OV ZAL-(+7) a. Assess the feasibility of the investment in option 1 (3 Marks) b. Assess the feasibility of the investments in option 2, what is the best combination of investments that the company should consider (3 Marks) C. Assess the feasibility of the investments in option 3 (2.5 Marks) 075 d. What is the best investment option for the company among the three options doove 12.5 Mars 29351-(740-75)
