QUESTION 1 Discuss the following using a practical references and examples from the Nigerian Financial Markets 1. Treasury Bills II. Treasury certificates III. Bonds IV. Finance Bill 2020 marks). (25 QUESTION 2 Baze University is produces a range of central heating systems for sale to builders' merchants. As a result of increasing demand for the businesses products, the directors have decided to expand production. The cost of acquiring new plants and machinery and the increase in working capital requirements are planned to be financed by a mixture of long-term and short-term borrowing. Required a) As the director of finance of Baze University, discuss the major factors that should be considered when deciding on the appropriate mix of long-term borrowing necessary to finance the expansion programme. b) List and explain the appropriate finance mix to Baze University as follows: 1. Three short-term sources of finance 11. Three long-term sources of finance (25 marks) QUESTION 3 Baze University is evaluating two investment projects, as follows. Project 1 This is an investment in new machinery to produce a recently- developed product. The cost of the machinery, which is payable immediately, is $15 million, and the scrap value of the machinery at the end of four years is expected to be $100,000. Tax-allowable depreciation can be claimed on this investment on a 25% reducing balance basis. Information on future returns from the investment has been forecast to be as follows: QUESTION 3 Baze University is evaluating two investment projects, as follows Project 1 This is an investment in new machinery to produce a recently developed product. The cost of the machinery, which is payable immediately, is $15 million, and the scrap value of the machinery at the end of four years is expected to be $100,000 Tax-allowable depreciation can be claimed on this investment on a 25% reducing balance basis. Information on future returns from the investment has been forecast to be as follows: Sales Volunteunit Yeu 50.000 95.000 100.000 29.000 Selling Price is unit) Variable Cast Sunil 10 11 12 123 105.000 15.000 125.000 125.000 This information must be adjusted to allow for selling price inflation of 4% per year and variable cost inflation of 2-5% per year. Fixed costs, which are wholly attributable to the project, have already been adjusted for inflation. Bare pays profit tax of 30% per year one year in arrears. Project 2 Baze plans to replace an existing machine and must choose between two machines Machine I has an initial cost of $200,000 and will have a scrap value of $25,000 after four years. Machine 2 has an initial cost of $225,000 and will have a scrap value of $50,000 after three years. Annual maintenance costs of the two machines are as follows: 23 Machine Syer 35.000.000 12.00.00 Machine2year 125,000 20.00 25.00 Where relevant, all information relating to Project 2 has already been adjusted to include expected future inflation. Taxation and tax-allowable depreciation must be ignored in relation to Machine 1 and 2 other information. Baze has a nominal before- tax weighted average cost of capital of 12% and a nominal after- tax weighted average cost of capital of 7%. Required: Calculate the net present value of Project 1 and comment on whether this project is financially acceptable to Baze University