Question 2 O Points Samarkand is a well-known US-based manufacturer of high-quality men's outerwear. They are considering a proposal to manufacture their Pristine" brand of high quality gaberdine coats in the United Kingdom. One inducement to make the investment is the prospect of subsidised financing in the form of a six-year loan of $20 million at 4% per annum. This loan would be repayable in six equal end-year payments. Additional information includes: Samarkand cost of equity Market cost of debt (unsubsidised) Optimal capital structure UK T-Bill rate Corporate tax rate, USA and UK 24 % 10% 40% debt, 60% equity 8% 34% D (a) What discount rate should Samarkand use to evauate the proposed project? (33%) (b) Explain fully whether or not you would you recommend that Samarkand undertake this investment, (33%) (c) What is the value of the subsidised loan? How would such a loan affect Samarkand's capital budgeting analysis? What (if any) are the controversial aspects? (33%)