(a) Project R delegates all the development work to outside companies. The estimated cashflows for Project R are (where brackets indicate expenditure):

Beginning of Year 1 (150,000) (contractors fees)

Beginning of Year 2 (250,000) (contractors fees)

Beginning of Year 3 (250,000) (contractors fees)

End of Year 3 1,000,000 (sales)

Project S carries out all the development work in-house by purchasing the necessary equipment and using the companys own staff.

The estimated cashflows for Project S are:

Beginning of Year 1 (325,000) (New equipment)

End of Year 1 (75,000) (Staff Cost)

End of Year 2 (90,000) (Staff Cost)

End of Year 3 (120,000) (Staff Cost)

End of Year 3 1,000,000 (sales)

REQUIRED Calculate the net present value for Project R and Project S using a risk discount rate of 20% per annum. Using net present values as a criterion, which project is preferable? [10 Marks]

(b) Mr. Ali enter into a 6 month forward on Microsoft Stock (No dividend has been forecasted in the future). It is currently trading at 100 and the continuous rate is 5% per year. What is the forward price? After 3 months, the last traded price is 120. What is the price of a 3 month forward now? Elaborate the strategy that Ali could chose to make a profit. [7 Marks]

(c) A life insurance fund had assets totalling 600,000,000 on 1 January 2018. It received net income of 40,000,000 on 1 January 2019 and 100,000,000 on 1 July 2019. The value of the fund was:

450,000,000 on 31 December 2018;

500,000,000 on 30 June 2019;

800,000,000 on 31 December 2019.

REQUIRED Calculate, for the period 1 January 2018 to 31 December 2019, to three decimal places, The time Weighted Rate of Return (TWRR) per annum.