ONLY NEED E AND F ANSWERED

2. (40 points) You are given with the following information of two projects planned by your company. Two projects are of the same initial costs with $3 millions. Project A B Year 1 -650 560 Table 1: (in thousands) Year 2 Year 3 720 - 50 1875 1600 Year 4 1000 Year 5 2800 Answer the following questions. a) Suppose the cost of capital is 12%. What are the Net Present Values for these two projects? b) Suppose the financial manager discovered that if we postponed the project B to two years later, the cost of capital could be 8% due to possible low future interest rates. However, the deferment may cost the firm additional $0.5 million to restart the facilities and the initial cost must be spent now, instead of two years later. Will you recommend waiting for additional 2 years to start? c) Let the corporate income tax rate be 30%, the cost of debts be 6%, the cost of equity be 25% and there is no preferred stock issued by the firm. What is the debt-to-equity ratio for your company? d) Find the IRR (Internal Rate of Return) for project A and project B. e) Suppose there is a 40% chance that the market may be bad and the cash flows for both projects will change to Project A B Year 1 -650 560 Year 2 720 1875 Year 3 - 50 -1500 Year 4 -100 Year 5 -500 That is to say, the original cash flows in Table 1 only have 60% chance to happen. What is your decision for each project? What is the present value of the marginal value of choice for each project? f) Suppose now these projects are about to invest in foreign countries. The projects are to finance locally. Let the local capital market offer the interest rate as 5% and the local tax rate is 15%, the "betas for project A and B are 1.2 and 1.5 respectively, where the risk-free rate is 5% and market index rate of return is on average 16%, the debt-to-equity ratio is 1 to 4, what are the risk-adjusted Net Present Values for these two projects