Question 1.

A new investment opportunity has arisen which will yield additional cash flows of 2,000,000 per annum beginning in one years time. The initial capital outlay required to execute the project is 5,000,000.

(i) Should the project be executed?

(5 marks)

(ii) Demonstrate whether the choice of using dividends or rights issue to finance the project impacts Antrak plc. value. Bear in mind the company has an infinite net cash flow of 5,000,000.