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

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Posted on Oct 21, 2024

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

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.