A firm has shortlisted the following two alternative projects for investment of $120 million. The...
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Finance
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 $42 million @ 14% cost
(a) Determine the appropriate cost to evaluate the alternative two projects if the tax rate applicable for the firm is 30%.
(b) Apply appropriate (at least two) techniques and find the best alternative project for investment purpose.
Year
Cash flow after tax, Project A
($ Million)
Cash flow after tax Project B
($ Million)
1
74
10
2
62
26
3
54
34
4
12
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.
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