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Which of the following statements is CORRECT?
Group of answer choices
One advantage of the NPV over the MIRR method is that NPV discounts cash flows whereas the MIRR is based on undiscounted cash flows.
Since cash flows under the IRR and MIRR are both discounted at the same rate (the WACC), these two methods always rank mutually exclusive projects in the same order.
One advantage of the NPV over the IRR is that NPV takes account of cash flows over a project's full life whereas IRR does not.
One advantage of the NPV over the IRR is that NPV assumes that cash flows will be reinvested at the WACC, whereas IRR assumes that cash flows are reinvested at the IRR. The NPV assumption is generally more appropriate.
One advantage of the NPV over the MIRR method is that NPV takes account of cash flows over a project's full life whereas MIRR does not.
What is the technical term for the American dollar?
Org Pvt. Ltd. is considering two mutually exclusive capital investments. The project’s expected net cash flows are as follows:
Expected Cash Flows:
Year Project A Project B
0 -400 -575
1 95 150
2 110 200
3 118 250
4 125 275
5 140 230
6 150 180
a. If you were told that each project’s cost of capital was 10%, which project should be selected using the NPV criteria?
b. What is each project’s IRR?
c. What is the regular payback period for these two projects?
d. What is the profitability index for each project if the cost of capital is 12%?
In the 2008 global financial crisis many banks faced both a liquidity shock and a solvency shock. Discuss the main causes of each of these shocks and explain how regulators and governments responded to the illiquidity/insolvency faced by banks. (25 marks)
3.
a) Discuss how asymmetric information affects lending/borrowing. (12 marks)
b) Discuss the solutions to the moral hazard problem in debt markets. (13 marks)
Section A - Question 1 Variance Analysis
Number of notebooks
30,000
Selling price
£24 per notebook
Variable costs
Direct material standard costs
2 square meter of paper input allowed per unit;
£0.40 per square meter paper
Direct labour standard costs
4 min of manufacturing labour allowed per unit;
£30/h
Total fixed costs
£500,000
The actual results for April were:
Number of notebooks
20,000.00
Revenues
500,000.00
Variable costs
Direct material
£16,650, 1.85 sqm per notebook, £0.45 per sqm
Direct labour
£44,000.00 , 4 min of manufacturing labour, £33/h
Total fixed costs
£595,000
a) Prepare a variance analysis report for April. Calculate level 2 variances for revenues, fixed costs and operating profit, as well as level 2 and level 3 variances for variable costs.
b) Comment on the results: What can management learn from Rachel’s analysis?
XYZ funds purchased a bank bill (face value=1 million) on 10th June 2020. The bill will mature in 60 days and the yield is 6.95%. After holding the bill for 40 days, the funds sold the bill at a yield of 6.5%.
a) Calculate the profit through buy and sell of this bank bill. (4.5 marks)
b) Work out the simple annual interest rate and effective annual interest rate earned by XYZ.(4 marks)
Makmak Corporation uses the Baumol Cash Management Model to determine its optimal cash balance. For the coming year, the expected cash disbursement total P430,000. The interest rate on marketable securities is P8 per transaction. What is the optimal Cash Balance of the company?
explain in two ways how a company can limit the agency cost through the payment of dividends.
North Corp. EBIT is $200. It has a debt-equity ratio of 25% and a WACC of 16%. Debt
interest is 12%. Without taxes, what is the value of the equity? What is the value of the
firm? What is the cost of equity capital?
