1. Jupiter Ltd is considering an investment in a licence to market a new brand of yoga mats for two years. The cost of the licence is $100,000. You estimate that the licence could generate $55,000 per 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 False
2. Ajax Ltd, in 2012, reported an amount of $45m in Accounts Receivable, which was up from $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 capital was partly funded by an increase in Accounts Payable, which was $26m in 2012, as compared 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 answer in million dollars, eg $999)
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3. 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 market traded debt.
B.The company's interest expense.
C.The coupon rate of the company's market traded debt.
D.The yield of an Australian government 10-year bond.
4. Drillpoint Ltd is considering an investment in an oil field, which it estimates will generate $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
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5. Mercury Ltd has $456m in debt, which has a yield to maturity (IRR) of 8.5%. The company also has shareholders funds of $1,145m and you estimate the cost of equity to be 11.3%. The corporate tax rate is 30%.
Adjusting for the fact that interest expenses are tax deductible, calculate the Weighted Average Cost of Capital of Mercury Ltd.
(Show your answer as a percentage to one decimal place, eg 99.9%)
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6. Ajax Ltd reported Net Income of $435m in 2013, after providing for $186m in tax at a rate of 30%. Interest Expense was $56m and Depreciation was $32m. The increase in working capital required to generate that Net Income in 2013 was $23m and the firm also 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)
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