You are working as project risk analyst who are responsible for the evaluation of investment proposals...

Transcribed Image Text:

You are working as project risk analyst who are responsible for the evaluation of investment proposals in a large multinational company called Exxon Mobile Corporation. One of the company's largest subsidiaries has proposed a huge investment which would double their manufacturing capacity and it can facilitate to sell overseas to several new markets. However, the proposal requires the company to raise a great financing to fund their investment and it is either by borrowing or by the issue of equity. The amount involved is large enough to justify either the issue or sale of shares of stock outstanding, but not a combination of both. The company has its own policy on evaluating investment prospects and they usually favor the analysis on the net present value (NPV) of estimated cash flows. a) Find the factors used in the analysis to determine the rate at which this proposal might be discounted (4 marks) b) Briefly justify which factors would be most important to this project. (4 marks) c) Justify how WACC might be affected if they decide to raise finance using either loan stock or equity. (8 marks) You are working as project risk analyst who are responsible for the evaluation of investment proposals in a large multinational company called Exxon Mobile Corporation. One of the company's largest subsidiaries has proposed a huge investment which would double their manufacturing capacity and it can facilitate to sell overseas to several new markets. However, the proposal requires the company to raise a great financing to fund their investment and it is either by borrowing or by the issue of equity. The amount involved is large enough to justify either the issue or sale of shares of stock outstanding, but not a combination of both. The company has its own policy on evaluating investment prospects and they usually favor the analysis on the net present value (NPV) of estimated cash flows. a) Find the factors used in the analysis to determine the rate at which this proposal might be discounted (4 marks) b) Briefly justify which factors would be most important to this project. (4 marks) c) Justify how WACC might be affected if they decide to raise finance using either loan stock or equity. (8 marks)