Case Study 235 marksFSB Ltd has a new project under consideration which will cost $10,000,000. The project is expected to generatebefore-tax cash flows of $2,500,000 forever. FSB Ltd is currently operating at its target debt-to-equity ratio of 0.25.The company wishes to raise the fund for the new project by a new issue of 20-year bonds with a yield to maturity of9% p.a. (the flotation costs of the new debt would be 4% of the amount raised) and a new issue of ordinary sharespriced $10 per share that will pay $1 after one year (D) and is expected to grow by 5% pa forever (the flotation costsof the new share issue would be 14% of the amount raised). The company tax rate is 30%.You are the assistant to the finance manager and is given the responsibility to analyse the project to determine if FSBshould accept this project or not.A. Calculate FSB Ltd's average percentage floatation cost of the new fund raising. (Show answer as a percentagecorrect to 2 decimal places.)B. Calculate the true cost of the new project. (Show answer correct to 2 decimal places.)C. Calculate FSB Ltd's weighted average cost of capital (WACC). (Show answer as a percentage correct to 2 decimalplaces.)D. Calculate the net present value (NPV) of the new project. (Show answer correct to 2 decimal places.)E. Explain if FSB Ltd should accept the new project or not.You are considering creating a diversified portfolio consisting of the following 5 shares.Share BetaA. 1.33B. 0.70C. 1.50D. 0.66E. 1.20A. If currently the risk-free rate equals 5% and the return on the market portfolio is 11%, calculate the return of eachshare according to Capital Asset Pricing Model (CAPM). (Show answer as a percentage correct to 2 decimal places.)B. If you want to invest $1,500 in Share A, $3,000 in Share B, $6,000 in Share C, $1,500 in Share D and $3,000 inShare E, calculate the weights of each share in the portfolio. (Show answer as a percentage correct to 2 decimalplaces.)C. Calculate the return of the portfolio. (Show answer as a percentage correct to 3 decimal places.)D. Calculate the portfolio beta. (Show answer correct to 3 decimal places.)

",.m.--, ' _-.m...- _-.-... -_--_..-... _--.---. . ..._...-_ .- __..-.. ....-.-...-.. _.-.-.-..- Case Study 3 40 marks Active Life Ltd has decided to manufacture a new line of running shoes based on a $50,000, two-year feasibility study. The shoes will sell for $35 a pair and has a variable cost of $30 a pair. It is estimated that the company will sell ?0,000 pairs per year for the next three years. Fixed costs each year will be $?00,000. The initial outlay includes $9,000,000 million to build production facilities. This facility will be depreciated to zero salvage value using the prime cost method over the life of the project. At the end of the project the facilities will be sold for an estimated value of $5,000,000. Active will also buy some land to build the facility. The land will cost $1,000,000. The land will not be depreciated and is expected to sell for $1,000,000 at the end of the project without any tax implication. Active Life Ltd's required payback is 2 years and the required rate of return is 12% pa. The relevant tax rate is 30% and tax is paid in the year in which earnings are received. Calculate the incremental cash flows of the new project for each year [YD to Y3 inclusive]. Calculate the payback period of the project. {Show answer correct to 4 decimal places.) Calculate the net present value iNPVj of the project. [Show answer correct to 2 decimal places.) Calculate the present value index of the project. {Show answer correct to 4 decimal places.) Should the company accept this project? Why or why not? F1905\