NBCC Ltd. directors are contemplating to choose the best modern asset from the following two. The...

 

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NBCC Ltd. directors are contemplating to choose the best modern asset from the following two. The management have decided to invest $100 million for the same and planning to get the fund from equity source. a) Determine the cost of capital applicable to evaluate the project, if at present the beta of the stock is 1.6, market risk premium 6% and risk free rate 5.5% and rate of interest on borrowings at 12%. Tax rate applicable to the firm at 35%. b) Apply NPV and IRR methods to evaluate the assets and suggest the best asset to be procured. Analyse critically your results. Years Asset- A Asset-B 11 2 3 4 CFAT ($Million) 35 35 35 35 CFAT ($Million) 10 16 28 46 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. NBCC Ltd. directors are contemplating to choose the best modern asset from the following two. The management have decided to invest $100 million for the same and planning to get the fund from equity source. a) Determine the cost of capital applicable to evaluate the project, if at present the beta of the stock is 1.6, market risk premium 6% and risk free rate 5.5% and rate of interest on borrowings at 12%. Tax rate applicable to the firm at 35%. b) Apply NPV and IRR methods to evaluate the assets and suggest the best asset to be procured. Analyse critically your results. Years Asset- A Asset-B 11 2 3 4 CFAT ($Million) 35 35 35 35 CFAT ($Million) 10 16 28 46 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 cost of capital applicable to evaluate the project we need to calculate the cost of equity and the cost of debt Then we can calcula... View the full answer