Question $6$

Exxon is financed with debt, preferred equity, and common equity with market values of R$20$

million, R$10$ million, and R$40$ million, respectively. The betas for the debt, preferred stock, and

common stock are $0\mathrm{.}2,0\mathrm{.}5,$ and $1\mathrm{.}1,$ respectively. If the risk$-$free rate is $3\mathrm{.}72$ percent, the market

risk premium is $5\mathrm{.}71$ percent, and both Exxon's average and marginal tax rates are $30$ percent.

Required:

What is the company's weighted average cost of capital?

Question $7$

$[15$ Marks$]$

Your company is considering five projects:

Project $C$ and $D$ are mutually exclusive, and the company has $R20000$ avalable for investment.

All projects can only be undertaken once and are divisible.

Required:

$7\mathrm{.}1.$ Which projects should be undertaken to maximise the NPV in the presence of capital

constraints? What is the maximum NPV and initial outlay?

$(10)$

$7\mathrm{.}2.$ If all projects can be undertaken, what is the level of NPV and initial outlay?