A company has the following capital structure with each type of finance having the cost as shown:
Question:
A company has the following capital structure with each type of finance having the cost as shown:
Debenture interest is allowable against corporation tax, which is 40%.
The company currently has three investment projects under review, details of which are given below. However, only two can be undertaken.
(a) Calculate the company’s cost of capital. (5 marks)
(b) Rank the investment projects in order of preference using: (i) Payback.
(ii) NPV; use your answer to
(a) as the discount rate. (17 marks)
(c) Refer to the table below:
Present Value Factors:
State, with reasons, the two projects you advise the company to select. (8 marks)
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Related Book For
Accounting Costing And Management
ISBN: 9780198328230
2nd Edition
Authors: Riad Izhar, Janet Hontoir
Question Posted: