1. Cactus Manufacturing has 50% of debt and 50% of equity in its capital structure. The firm is in the process of analysing its investment decision-making procedures. During the past month, two mutually exclusive projects have been evaluated by the firm; Projects North and South. A summary of the project analysis along with the investment decision is provided as follows:

Basic variables	Project North	Project South
Cost	$100,000	$100,000
Life	20 years	20 years
IRR	7%	12%
Least-Cost Financing:
Source	Debt	Equity
Cost (After Tax)	6%	14%
Investment Decision:
Action	Accept	Reject
Reason	7% IRR > 6% cost	12% IRR < 14% cost

Required:

Evaluate the appropriateness of the firms decision-making procedures and recommend improvements to its procedures. Explain if the acceptance of Project North and rejection of Project South is in the best interest of the firms owners.