Ramco industries choose the best asst from the following two alternatives assets for investment purpose....
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Finance
Ramco industries choose the best asst from the following two alternatives assets for investment purpose. The expected
investment is decided to be $110 million mobilized from both debt and equity sources in equal proportions. The beta of the stock is 0.94, market risk premium 6% and risk free rate at 5% and tax rate applicable to the firm at 40%. Firm's pre tax Kd is 12%.
Determine the cost of capital applicable to evaluate the assets
bApply NPV, IRR & Pl methods to evaluate the proposals and suggest the best one. Analyse your results
investment
Investment Year
Asset-A
Asset-B
0
55
110
3
55
NIL
cash flow after tax
Year
CFAT- Asset-A ($Million)
CFAT-Asset-B
($Million)
1
15
10
2
3(
16
3
45
28
4
48
46
the rates should be rounded off to the
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