QNo.1AssumethatyouaregivenassignmenttoevaluatethecapitalbudgetingprojectsofthecompanywhichisconsideringinvestingintwoSolarEnergyprojects,"JamperSolarProject"and"SajawalSolarProject".TheinitialcostofeachprojectisRs.10000Million.CompanydiscountallprojectsbasedonWACC.Further,alltheprojectsareequallyriskyprojects,andthecompanyusesonlydebtandcommonequityforfinancingtheseprojects.Itcanborrowunlimitedamountsatinterestrateofrd10%aslongasitfinancesatitstargetcapitalstructure,whichcallsfor50%debtand50%commonequity.ThedividendforcurrentperiodisRs7.36,itsexpectedthatthedividendwillgrowattheconstantgrowthrateof8%,andthecompany'scommonstocksellsfor80.Thetaxrateis50%.

Thecashflowsofboththeprojectsaregivenintablebelow:

Time

JamperSolarProjectCashflows(amountinRs.Millions)

SajawalSolarProjectCashflows(amountinRs.Millions)

0

-10,000

-10,000

1

6,500

3,500

2

3,000

3,500

3

3,000

3,500

4

1,000

3,500

Carefullyanalyzetheabovetableandanswerthefollowingquestionsindetail.

I.Calculatetheweightedaveragecostofcapitalforthisfirm?(2marks)

II.Computeeachproject'sIRR,NPV,payback,MIRR,anddiscountedpayback.(3Marks)

III.Whichproject(s)shouldbeacceptediftheyaremutuallyexclusive?Explain(2.5Marks)

IV.Whichproject(s)shouldbeacceptediftheyareindependent?Explain(2.5Marks)