parts used in the after-market with products from Daimber, Chrysler, Fond, and cther automakers He is in change of capital budgeting and was asked bo conduct the following capital budgeting. Mrs. Linda Smith, his boss and dief finencial office (CFO) came in his ofice and handed him a memo for two proposed propects. Fripects L and M. Alse, ahe emphasized that it is not difficult to raise $100 million by iasting corporate bonds and another 5100 milion dollars by selling new stods for the proposed propxts. Ste abo explained that Allied has a fairly good rating from the Moody's and would end up with a coupon payment of $80 annually per $1,000 face value. Then, he asked her buak about Allied's beta. She paused and added, "Well, at depends and varies all the time Oddly enough, Allied's beta hasn't changed much over the recent years, and it has been atound 1.1." She went on to say, "the current financial markets are out of line and that is, market risk premium runs about 12%, which 1 have never sem duning my tenure here. On the contrary, the interest rate on risk free assets is merdly 2.5%. Finally, she went back to her nice clean oftice. Mr. Chad looked into the mrmo that she left behind on the two projects. The following is on the memo. Propect L involves adding a new iscm to the firm's ignition system line it would take some time to build up the market for this product so the cash inflows would increase over time. Frupect M involves an add-on to an existing line, and its cash flows would decrease over time. Both projects have 3-year lives because Allied is planning to introduce entirely new models after 3 years. Here are the projects' net cosh flows (in million dollars): Depreciation, salvage values, net working capital requinements, and tax effects ane all included in these cash flowx. The current tax rate for Allied is 19%. The CFO also made subjective risk assessments of each project, and she concluded that both projects have discount rates that are identical to the firm's cost of capital of 5200 million dollan. A. 330 points) If you were in charge of Allied's capital budgeting, which propect(s) would yoa recommend? Explain why. B. (10 points) What could be your recommendation, if the company were to raise only 5100 by a stock isenance of 550 million and a bond issuance of 550 million? Justify your recommendation