Selling price and variable cost are given here in current price terms before taking account of forecast selling price inflation of 4% per year and variable cost inflation of 5% per year.<br>Incremental fixed costs of $500,000 per year in current price terms would arise as a result of producing the new product. Fixed cost inflation of 8% per year is expected.<br>The initial investment cost of production equipment for the new product will be $2·5 million, payable at the start of the first year of operation. Production will cease at the end of four years because the new product is expected to have become obsolete due to new technology. The production equipment would have a scrap value at the end of four years of $125,000 in future value terms.<br>Investment in working capital of $1·5 million will be required at the start of the first year of operation. Working capital inflation of 6% per year is expected and working capital will be recovered in full at the end of four years.<br>Hebac Co pays corporation tax of 20% per year, with the tax liability being settled in the year in which it arises. The company can claim tax-allowable depreciation on a 25% reducing balance basis on the initial investment cost, adjusted in the final year of operation for a balancing allowance or charge. Hebac Co currently has a nominal after-tax weighted average cost of capital (WACC) of 12% and a real after-tax WACC of 8·5%. The company uses its current WACC as the discount rate for all investment projects.<br>Required:<br>(a) Calculate the net present value of the investment project in nominal terms and comment on its financial acceptability. (12 marks)<br>(b) Discuss how the capital asset pricing model can assist Hebac Co in making a better investment decision with respect to its new product launch. (8 marks)

Nesud Co has credit sales of $45 million per year and on average settles accounts with trade payables after 60 days. One of its suppliers has offered the company an early settlement discount of 0·5% for payment within 30 days. Administration costs will be increased by $500 per year if the early settlement discount is taken. Nesud Co buys components worth $1·5 million per year from this supplier.<br>From a different supplier, Nesud Co purchases $2·4 million per year of Component K at a price of $5 per component. Consumption of Component K can be assumed to be at a constant rate throughout the year. The company orders components at the start of each month in order to meet demand and the cost of placing each order is $248·44. The holding cost for Component K is $1·06 per unit per year.<br>The finance director of Nesud Co is concerned that approximately 1% of credit sales turn into irrecoverable debts. In addition, she has been advised that customers of the company take an average of 65 days to settle their accounts, even though Nesud Co requires settlement within 40 days.<br>Nesud Co finances working capital from an overdraft costing 4% per year. Assume there are 360 days in a year.<br>Required:<br>(a) Evaluate whether Nesud Co should accept the early settlement discount offered by its supplier. (4 marks)<br>(b) Evaluate whether Nesud Co should adopt an economic order quantity approach to ordering Component K. (6 marks)<br>(c) Critically discuss how Nesud Co could improve the management of its trade receivables. (10 marks)

Which of the following would you expect to be the responsibility of financial management？

A. Producing annual accounts
B. Producing monthly management accounts
C. Advising on investment in non-current assets
Deciding pay rates for staff

The current share price of Lane Co is $3·60 per share and future share price growth is expected to be 5% per year.<br>The before-tax cost of debt of these loan notes is 10% and corporation tax is 30%. What is the current market value of a Lane Co convertible loan note？

A. $82·71
B. $73·47
C. $67·26
D. $94·20

Which of the following government actions would lead to an increase in aggregate demand？<br>(1) Increasing taxation and keeping government expenditure the same<br>(2) Decreasing taxation and increasing government expenditure<br>(3) Decreasing money supply<br>(4) Decreasing interest rates

A. 1 only
B. 1 and 3
C. 2 and 4 only
D. 2, 3 and 4

What is the theoretical value of a right per existing share？

A. $1·60
B. $0·40
C. $0·50
D. $1·50