A firm has shortlisted the following two alternative projects for investment of $120 million. The investment...

 

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A firm has shortlisted the following two alternative projects for investment of $120 million. The investment amount is proposed to be mobilized from the following sources. Debt: $78million @12% cost Equity $42 million @ 14% cost (a) Determine the appropriate cost to evaluate the alternative two projects if the tax rate applicable for the firm is 30%. (b) Apply appropriate (at least two) techniques and find the best alternative project for investment purpose. Year 1 2 3 4 Cash flow after tax, Project A Cash flow after tax Project B ($ Million) ($ Million) 74 62 54 12 10 26 34 79 NB: the rates should be rounded off to the nearest whole number, like- if 10.45 take 10% or if 10.56, take 11% and so on. A firm has shortlisted the following two alternative projects for investment of $120 million. The investment amount is proposed to be mobilized from the following sources. Debt: $78million @12% cost Equity $42 million @ 14% cost (a) Determine the appropriate cost to evaluate the alternative two projects if the tax rate applicable for the firm is 30%. (b) Apply appropriate (at least two) techniques and find the best alternative project for investment purpose. Year 1 2 3 4 Cash flow after tax, Project A Cash flow after tax Project B ($ Million) ($ Million) 74 62 54 12 10 26 34 79 NB: the rates should be rounded off to the nearest whole number, like- if 10.45 take 10% or if 10.56, take 11% and so on.

Answer rating: 100% (QA)

a To determine the appropriate cost to evaluate the two projects we will calculate the weighted aver... View the full answer