Maryhill Fabrics is considering an investment opportunity to expand its soft furnishings market share. They have identified a new building which they can rent for 25,000 a year and have estimated that machinery requirements for the project can be bought from their current capital budget for 1,000,000. It is estimated that the machinery acquired will have a resale value at the end of the project of 100,000. The project will last for five years.

1) identify the relevant costs of the project and calculate it's net present value, ignoring the possible impact on taxation. 2) calculate the annual allowances available to the company to offset against taxation if they are allowed 30%, reducing balance capital allowances for the project's five-year life.

Keavagh Partners, a company providing technical analysis services in the renewable industry, is financed from Ordinary Shares and Long-Term Bonds with a coupon rate of 5%. The company has issued 10 million shares at flotation, currently trading at 4.50 per share, and recently raised 8 million through the bond issue. The bonds are trading today at 90 per 100 bond. Financial analysts have calculated that an appropriate Beta for the company would be 1.7, given its business and financial risk levels. The risk-free rate is 3%, and the market premium is 6%. The tax rate applicable to company operations is 20%.

1. Calculate Keavagh's weighted average cost of capital. 2. Does debit in the capital structure enhance project value? Discuss.