A construction firm has the following abridged balance sheet: Assets -Net fixed assets GBP70,000,000 Cash and Current assets 30,000,000 Total assets 100,000,000 Financed By 7% Debentures GBP30,000,000 Equity capital GBP60,000,000 Current liabilities GBP10,000,000 Total capital 100,000,000 Its fixed assets are expected to provide a 15% return over the planned investment horizon. This firm intends to embark on projects that require an initial sinking of 30million and are expected to provide in aggregate a 20% return over the planned investment horizon. These projects are to be financed wholly by the internally available funds and the debentures are to be redeemed at the end of the planned investment horizon.

For this firm,

1. Evaluate, stating your assumptions, the probability that the firm is financially better off by embarking on the intended projects; (40 marks)

2. Assuming that it is only able to earn actual returns of 12% on its fixed assets and 15% on its projects, derive the projected balance sheet at the end of the planned investment horizon; (60 marks)

Notes: in the question , there is no information about length of investment horizon, please please assume 12 months duration thanks