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Question 3 (10 points) (Capital Budgeting) Data Corp needs to buy new equipment to pursue new business lines in order to increase its value. The
Question 3 (10 points) (Capital Budgeting) Data Corp needs to buy new equipment to pursue new business lines in order to increase its value. The company has two options Expected Main. Costs Expected Salvage OptionInvestmentRev (per yr) (per yr) Life(yrs) Value Initial 15,000 20,000 3,000 2,100 6,000 5,000 6,000 13,000 13 Also assume Option B will get a tax rebate of $2,000 in year 4 and $1,500 in year 8. Data Corp has a beta of 1.2, the risk free-rate is 3% and the market risk premium is 8%. A. Calculate the IRR and NPV of each option (10 points) B. Which strategic decision should Data Corp make? Why? (10 points)
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