1.What is the difference between ordinary and preference shares? Which one normally provides a higher investor return and why?

2.Zip Ltd. has an outstanding loan of $50 million with a bank, and the interest rate on the loan is 3%. Zip Ltd. has a second type of debt which is a bond issue that the company sold 2 years ago for $38 million. The market value of these bonds today is $30 million. The effective annual yield on these bonds is 5%. The company has also 10 million ordinary shares outstanding with a current price of $12 per share. The Beta of the ordinary share is 1.2, the market risk premium is 6% and the risk free rate is 2.5%. Zip Ltd. has a 30% corporate tax rate.

Compute Zip Ltd's weighted average cost of capital (WACC).

3.Lynas Ltd. is considering purchasing a new mining excavator that costs $1,500,000. The mining excavator will generate incremental revenues of $300,000 per year for ten years. The cash operating costs needed to generate these revenues will total $45,000 per year. The mining excavator will be depreciated on a straight-line basis over ten years to zero. Orange Ltd.'s tax rate is 30 percent, and its cost of capital is 7 percent.

(a)What is the net present value of this project?

(b)Should the company approve this project? Explain why or why not.

(Show all of your calculation).