Shakti Enterprises is contemplating to undertake a new project. The company has taken loan whose market value is Rs. 10 lakhs on which it pays interest of 11% p.a. The company is listed with a market capitalization of Rs. 15 lakhs. The company has a beta of 1.1. Given the following expected cash flows and initial investment of Rs. 80,000, should the company be accepting this project using the NPV rule? Assume the risk free rate, risk premium and corporate tax rate to be 3.5%, 6% and 30% respectively. Year 1: Rs. 12000 Year 2: Rs. 23500 Year 3: Rs. 25000 Year 4: Rs. 43000

Answer rating: 100% (QA)

Cost of Equity Rf BetaRmRf 35116 101... View the full answer