1.Jupiter Ltd is considering an investment in a licence to market a new brand of yoga mats for twoyears. The cost of the licence is $100,000. You estimate that the licence could generate $55,000per year of the licence. The cost of capital is estimated to be 15% per annum.Is the project financially viable according to the Profitability Index?Answer: True or False2.Ajax Ltd, in 2012, reported an amount of $45m in Accounts Receivable, which was upfrom $39m in the previous year. Inventories were also up on the previous year, being$25m in 2012 as compared with $21m in 2011. This investment in working capitalwas partly funded by an increase in Accounts Payable, which was $26m in 2012, ascompared with $25m in 2011.Calculate the increase in Net Working Capital in 2012.(Show an increase in Net Working Capital as a positive amount and show your answerin million dollars, eg $999)Answer:UnitNumber3.The most accurate measure of the cost of a company’s debt is:Choose one answer. A.The yield to maturity of the company’s markettraded debt. B.The company’s interest expense. C.The coupon rate of the company’s market tradeddebt. D.The yield of an Australian government 10-yearbond. 4. Drillpoint Ltd is considering an investment in an oil field, which it estimates willgenerate $2m in royalties each year over a ten year period. The investment will cost$7m.Calculate the pay back period.Show your answer in years to one decimal place, eg. 9.9 Answer:Number 5.Mercury Ltd has $456m in debt, which has a yield to maturity (IRR) of 8.5%. Thecompany also has shareholders funds of $1,145m and you estimate the cost of equityto be 11.3%. The corporate tax rate is 30%.Adjusting for the fact that interest expenses are tax deductible, calculate the WeightedAverage Cost of Capital of Mercury Ltd.(Show your answer as a percentage to one decimal place, eg 99.9%)Answer:NumberUnit 6.Ajax Ltd reported Net Income of $435m in 2013, after providing for $186m in tax at arate of 30%. Interest Expense was $56m and Depreciation was $32m. The increase inworking capital required to generate that Net Income in 2013 was $23m and the firmalso invested $53m in new property, plant and equipment during the year.Calculate the free cash flow generated by Ajax Ltd in 2013.(Show your answer in million dollars to one decimal place, eg $999.9)Answer:UnitNumber 7You have estimated the beta of Ajax Ltd against the ASX200 as being 1.2. Theaverage risk premium for the Australian market you estimate to be 6% and the riskfree rate as represented by the current yield to maturity of an Australian government10-year bond is 3.9%.Estimate the cost of equity for Ajax Ltd, using CAPM.(Show your answer as a percentage to one decimal place, eg 99.9%) Answer:NumberUnit 8.A company is considering investing in some new equipment. The new equipment willdeliver cost savings of $100,000 in the first year and $130,000 in the second year,before being sold for $56,000 at the end of the second year. It will cost $230,000 tobuy and install the new equipment, which will be paid on purchase.Assuming a cost of capital equal to 11.4%, estimate the NPV of the investment in newequipment.(Show your answer with no decimal places.)Answer:UnitNumber 9You have estimated the NPV of a project and wish to evaluate the sensitivity of theNPV you have estimated to a change in the cash flows estimated for the project. Allelse being held equal, if you were to estimate higher future cash flows for the project,would you expect the NPV to:Choose one answer. A.Show no change B.Fall C.Rise D.Either rise or fall10.You have estimated the NPV of a project and wish to evaluate the sensitivity of theNPV you have estimated to a change in the estimation of the risk inherent in theproject. If you were to increase your estimate of the risk associated with the project,resulting in an increased discount rate, would you expect the NPV to:Choose one answer. A.Rise B.Fall C.Either rise or fall D.Show no changeNext
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