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Question 1 Division M is a division of MT Co. The following data relates to Division M Total assets Total Liabilities Current Liabilities Profit
Question 1 Division M is a division of MT Co. The following data relates to Division M Total assets Total Liabilities Current Liabilities Profit before tax Tax rate Interest on long term liabilities Cost of Capital Division M is considering two proposals S440 m $ 180 m $ 100 m $ 140m 30% 12% 15% per annum Proposal 1: invest in further $40m in fixed assets to earn an annual profit of $4.5m Proposal 2: Dispose of fixed assets at their net book value of $60m; this would lead to profit falling to $12 per year. The proceeds of the fixed assets should not be credited to division M.
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