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Assignment - Capital Structure Decision. Abosky lid, is a new firm, and has the opportunity to invest in its first new project. The new project will require investment of GHS100,000, and is expected to provide net cash flow of GHS40,000 per anmun for the foreseeable future (that is, It can be treated as a perpetuity). The board are discussing the best way to rabe finance for the new project. A heated discussion follows, One board member has just been on a course on Miller- Modigliani, and announces that "it does not matter how we finance the project. It will not affect the value of our company. What matters is that the project has a positive NPV at a discount rate of 15%%. Therefore, we should take it with any financing mis." Another board member disagrees. He argues The financing mix does matter! It is crucial that we find the right capital structure, especially as we pay corporation tax of 40%%." Further Information: The finance director has obtained two possible estimates of the pre-tix cost of capital for different capital structures as follows (for simplicity, assume that the pre tax and post tax cost of equity is identical): Case 1:Risk free Debt Debt/ 'S equity Cost of Debt () Cost of Equity (24) 0/1 00 15 10/10 16.2 5 175 30/70 193 40/60 21.7 50/50 15 25 60/40 15 30 70/30 18.5 80/20 65 Assessment_task_V1,0/09_04_14 Case 2: Risky Debt % Debt/ 'S equity Cost of Debt () Cost of Equity () 0/100 15 10/90 5 16.2 20/80 5 17 5 30/70 15 193 40/60 21.7 50/50 5 25 60/40 30.5 70/30 7 394 57 Required:- a) You are required to prepare a numerical analysis for the board regarding the effect of capital structure on Abosky's cost of capital and fin value. You should analyse 4 cases: ") risk-free debt without tax. bj Risky debt without tax c) Risk- free debt with tax. d) Risky debt with tax, In each caw, you should present tables. and graphs, that show the WACC and project values for different debt equity ratios. Your report should recommend the optimal capital structure for the new project In all cones