PART B: JUSTIFIED MULTIPLE CHOICE (4 marks) [ILO A1/C1]

You have the following data supplied by the investment banking unit arranging the project finance for the Chunnel:

• Weighted Cost of Capital = 7%
• Opportunity Cost of the Project = 5%

The discount rate to be used to discount the projected future income streams of the project ought to be

[a]= 2%

[b] =5%

[c] between 5% and 7%

[d] =7%

[e] =12%

[f] >12%

[g] >>12%

Note that for purposes of this question a single greater than sign (>) indicates marginally greater than but a double greater than sign (>>) indicates substantially greater than

Choice: _____ (one single letter drawn from [a] through [g] (1 marks)

Rationale (MAXIMUM WORD LIMIT: 100 words): (3 marks)

Warning: IF NO LETTER IS INSERTED AFTER Choice (above), AWARD WILL BE ZERO FOR THIS WHOLE PART B. Your rational must explain your choice of letter.

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