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Makunganya Ltd is one of the registered companies in the DSE market The company has experienced an increase in the

market share due to the good performance of its investments, The Finance manager of Makunganya Ltd has presented five options to the Board of Directors on how the Company can expand its investments portfolilo and take advantage of the increased market share. The Company has 20,000,000 Tshs available for investments Option 1-Purchase of shares of MOND Ltd- the Shares are currently trading at 40 Tshs per share and the company has just paid a dividend of 3 Tshs per share. The market forecast shows that the MOND LTD dividends growth rate is expected to increase by 20% in each year from its current rate of 10% for the next 3 year thereafter stabilize at 8% per year The company required rate of return is 20 n Option 2-Invest In realestate- The finance manager has suggested 4 divisible investments with a usefu life of 5 years. The company shall keep the investment for not more than 4 years as per company investment policy and depreciation is charged at straight-line base. The financial forecasts for the 4 investments are as follows Investment Initial capital Annual proit Tax rate Salvage Required rate Before tax (Including value in of return capital the end of sain)4" year | | Residential | 100,000,000 | 20,000,000 2 Garage 4 | 20% i 40,000,000 112% house 80.000.000 I supermarket | 95,000,000 150,000,000 | 15.000,00 | 12 000.000 i1000000 i 12% | 15% 118% | 32000,000 | 104 | 38,000,000 | 8% 3 |Gas station ↑20,000,000 17% Government Bond-Government Bonds are currently trading at 1,100 Tshs. The bond maturity date 2039 and a stated coupon rate of 8.5% On January 1, 2019, the bond had 20 years left to maturity, and the market's required yield to maturity for similarly rated debt was 7.5% Required Assess the feasibility of the investment in option 1 (3 Marks) b. Assess the feasibility of the investments in option 2, what is the best combination of investments that the company should consider (3 Marks) Assess the feasibility of the investments in option 3 (2.5 Marks) c d. What is the best investment option for the company among the three options above

Top Answer

a. The fair market price of the security of MOND Ltd. is 31.52 Tshs. b. NPV of the residential house is... View the full answer

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