Question B1 (15 marks) A company is considering the following two mutually exclusive projects. Both projects will be depreciated using straight-line depreciation to a zero book value over the life of the project. Neither project has any salvage value. Project A Year Cash Flow -$87,000 $31,000 $37,000 Project B Year Cash Flow -S85,000 $15,000 $20,000 $44,000 $90,000 Required rate of return Required payback period Required accounting return 14 percent 2.5 years 12 percent 2.5 years 10 percent 11 percent (a) Should the company accept or reject these projects based on NPV analysis? (6 marks) (b) Should the company accept or reject these projects based on payback analysis? (6 marks) (e) If NPV analysis and payback analysis offer conflicting answers, which answer should the company follow and why? (3 marks) Question B2 (15 marks) (a) A company has just issued a 6% coupon, 10-year bond. The credit rating is BBB. The par value of the bond is $1,000 and the coupons are paid semi-annually. What is the current price of the bond if it offers a yield to maturity (YTM) of (8 marks) 4.8%? (b) What is the effect of a bond's YTM on its price? (3 marks) (e) ABC Ltd is raising $180 million for a new project. It can raise $126 million via debt with a pre-tax cost of 6%; raise the rest via equity with a cost of 22%. The corporate tax rate is 16.5%. What is the weighted average cost of capital (WACC) for this project? (4 marks)