SECTION B Question One You are working for Campbell PLC, a technology firm located in the UK. Your boss has asked you to calculate the Weighted Average Cost of Capital (WACC) and have been provided with the following information: Beta-1.23, R = 0.5% per annum, [E(Rm)-Ri]=6.25% Campbell PLC has one zero coupon bond in issue that expires in 9 years, the par value is 1,000 and it is currently priced at 658.82. (a) Assuming debt-to-equity ratio of 0.75 and corporate taxes at 17% per annum, find the WACC for Campbell PLC, showing your working and explaining each step. [40 marks) (b) Campbell PLC is considering 2 investment projects. Project A requires an investment of 3.4m and produces annual cash flows of 0.7m for the next 7 years. Project B costs 6.8m and produces net cash flows of 1.25m for the next 7 years. Calculate the Net Present Value (NPV) of both projects and make a recommendation based on the NPV decision rule [20 marks) (c) State the Internal Rate of Return (IRR) decision rule, write down the formula to calculate IRR and draw a graph that explains how IRR is calculated [10 marks) (d) Calculate the IRR for projects A and B and evaluate using the IRR decision rule [10 marks) (e) Discuss Payback and Modified Payback investment decision rules and outline their advantages and disadvantages [20 marks) ACF1204 Page 5 of 14 CONTINUED