Question 1

A. ABC plans to invest in the project which has a life of 10 years. The project reuquires an initial
capital of $10,000 to purchase new machinery, $8000 for fixtures, $20,000 for training of
labour. Over this there is an additional requirement for land which will approximately cost
$25000 for the plant to be established.

ABC is expecting to earn the following from the aforementioned project in the years to come:

Years Profits
1 (15000)
2 10000
3 20000
4 28000
5 30000
6 35000

After year 6 the project will generate of profit of $15000 for the rest of its life. Calculate the
NPV for the project.

B. Alpha Ltd is evaluating its options to invest into one of the 3 below mentioned businesses as a
long term investment plan. Following are the yearly cash flow returns of options that are under
consideration.

Cash Flow generated from each Business

Years Business A Business B Business C
1 61000 10000 42000
2 34000 62000 31000
3 60000 49000 68000
4 40000 58000 12000
5 57000 35000 94000

Cost of each Business is as following:

Business A - $146000
Business B - $96000
Business C - $130000

Keeping in mind the prevailing Bank interest rate of 8%, suggest which Business should the
management of Alpha Ltd invest in if the option of investment is mutually exclusive.
 Question 2
Profit on Sale of Machinery 41,000
Increase in Prepaid expenses 2800
Decrease in accounts payable 7300
Tax estimate for the year 6200
Decrease in accrued expenses payable 7500
Interest estimate during the yaer 8100
Depreciation 28000
Increase in accounts receivable 13000
Increase in Inventories 40,000
Earnings Before Interest and Tax 325,000

ADDITIONAL INFORMATION:

1. During the year, Brooks declared cash dividends in the amount of $300,000.
2. Brooks sold 500 shares of investment stock which it had acquired for $410 per share
for $460 per share on January 18, 2016.
3. On October 25, 2016, Brooks issued 15,000 shares of common stock for $52 per
share.
4. Brooks purchased $325,000 in securities during the year.
5. Machinery costing $350,000 was sold during the year for $79,000. The book value
was $138,000.
6. During 2016, Brooks received $41,000 in dividends from the investment it made.
7. During 2016, Brooks sold marketable securities which it had acquired for $212,000 for
$317,000.
8. Bad debts in the amount of $33,000 were written off during the year.
9. In February, Brooks issued 200,000 shares of common stock @ $2 out of which 30%
were stock dividend.
10. During the year, Brooks paid $2,676,000 in cash for land, building, and equipment.
11. Brooks issued $6,000,000 in bonds at face value on August 1, 2016.
12. In October, Brooks acquired 2,000 shares of treasury stock at $38 per share.
13. During the year, Brooks acquired a Trademark worth $27,000 and copyright on its
processing manual for $471,000.

Required:

Using the aforementioned information, prepare Cash Flow Statement of Brooks Pvt Ltd as
at 31st December 2016
 Question 3

XYZ Ltd is a UK based company operating into tertiary sector. The company management
was informed by some external consultants about risk diversification through Portfolio
management of their investments.

You are hired by XYZ Ltd and are provided with the following data:

Returns with respect to economic stages

Economics Stage Return % Probabilities
Normal 15 0.25
Recession 5 0.35
Boom 38 0.4

Particulars Values
Rish free prevailing rates for the industry 5%, 6.5% and 5.75%.
Estimated Market Return for the sector 12%
Tax Rate for the year 25%
Percentage of equity 64%
Bond A expected returns for 10 years 7.5%
Bond B expected returns for 10 years 8.5%
Bond C expected returns for 10 years 9%
Beta for the industry 1.83

Requirements:
You are required to help XYZ calcualte the following:

1. Total Risk of the firm.

2. Coefficient of variance.
3. Expected return on Equty.
4. Expected Return on Debt.
5. Weighted Average Cost of capital.