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Criteria Investment X InvestmentY
NPV R44 000 −R22 000
PI 1,945 0,071
IRR 16,00% 8,04%
Which investment(s) should you choose, taking all the above criteria into consideration, if the cost of capital is equal to 12% per year? [1] X [2] Y [3] Both X and Y [4] Neither X nor Y [5] Too little information to make a decision
Year Cash inflow (R)
3 45 000
6 90 000
9 115 000
The applicable interest rate is 11,59% per year. The present value of the cash outflows is R95 000
The future value of the cash inflows is approximately
[1] R326 950. [2] R271 470. [3] R169 330. [4] R218 000. [5] R250 000
Consider Bond XYZ
Coupon rate: 9,75% per year
Yield to maturity: 11,4% per year
Maturity date: 15 April 2046
Settlement date: 29 November 2021
The clean price is
[1] R88,77706%. [2] R81,69720%. [3] R85,22964%. [4] R86,37296%. [5] R86,39294%
Consider Bond XYZ
Coupon rate: 9,75% per year
Yield to maturity: 11,4% per year
Maturity date: 15 April 2046
Settlement date: 29 November 2021
The accrued interest is
[1] R1,20205%. [2] R2,34537%. [3] R5,87781%. [4] R1,18207%. [5] none of the above
Down-To-Earth sells houses. The following table represents the selling price of a house (y) in thousands of rands and the number of houses sold at that price (x):
x 5 15 19 7
y 500 900 1500 2 000
The correlation coefficient of a linear regression between x and y is approximately
[1] 5,72.
[2] −0,16.
[3] 0,16.
[4] 4,00.
[5] none of the above
Down-To-Earth sells houses. The following table represents the selling price of a house (y) in thousands of rands and the number of houses sold at that price (x):
x 5 15 19 7
y 500 900 1500 2 000
The standard deviation for the number of houses sold is
[1] 6,6.
[2] 4,0.
[3] 11,5.
[4] 5,7.
[5] none of the above.
The following figures show the profit of a greengrocer for the past five years: R360 000, R550 000, R200 000, R80 000 and R700 000. The arithmetic mean of the data is
[1] R225 424. [2] R252 032. [3] R1 890 000. [4] R378 000. [5] none of the above
The next coupon date that follows the settlement date of a bond is 28 October 2021. The half-yearly coupon rate is 7,375%. The accrued interest equals R5,49589%. If this is a cum interest case, the settlement date for this bond is
[1] 11 September 2021. [2] 14 June 2021. [3] 30 July 2021. [4] 29 August 2021. [5] none of the above.
If the NPV (Net Present Value) of a shop is R195 000 and the profitability index is 1,24375, the initial investment in the shop is
[1] R86 908. [2] R800 000. [3] R195 000. [4] R156 784. [5] none of the above
$1,000-par-value bonds paying annual interest at a 12% coupon rate. As a result of
current interest rates, the bonds can be sold for $1,010 each; flotation costs of $30
per bond will be incurred in this process. The firm is in the 40% tax bracket.
a. Find the net proceeds from sale of the bond, Nd.
b. Show the cash flows from the firm’s point of view over the maturity of the bond.
c. Calculate the before-tax and after-tax costs of debt.
d. Use the approximation formula to estimate the before-tax and after-tax costs of
debt.
e. Compare and contrast the costs of debt calculated in parts c and d. Which
approach do you prefer? Why?
