Question
Compania Troquelados, a medium-size Mexico City auto parts maker, is considering renovating its plants in the Chinese subsidiary that will increase the sales perpetually by
Compania Troquelados, a medium-size Mexico City auto parts maker, is considering renovating its plants in the Chinese subsidiary that will increase the sales perpetually by 150,000 Yuan per year, starting from the end of the first year. The initial investment will cost 1,450,000 Yuan today. The corporatewide debt-to-equity ratio is 1:1, after-tax cost of debt is 7%, and a cost of equity capital is 10% to pursue this project. The debt capacity of the project is the same as or the company as a whole, but the required rate of equity return for this project is 15%. The after-tax cost of debt for the project is expected to remain at 7%. Which one of the following statements is NOT TRUE regarding the firms decision?
Select one:
a. None of the above. All the statements are correct.
b. The projects weighted cost of capital is 11%.
c. The company has to reject this project.
d. The NPV of the project is 314,706 Yuan.
e. The projects WACC is higher than that of the parent.
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