Ramco industries choose the best asst from the following two alternatives assets for investment purpose. The expected

investment is decided to be $110 million mobilized from both debt and equity sources in equal proportions. The beta of the stock is 0.94, market risk premium 6% and risk free rate at 5% and tax rate applicable to the firm at 40%. Firm's pre tax Kd is 12%.

1. Determine the cost of capital applicable to evaluate the assets

bApply NPV, IRR & Pl methods to evaluate the proposals and suggest the best one. Analyse your results

investment

Investment Year	Asset-A	Asset-B
0	55	110
3	55	NIL

cash flow after tax

Year		CFAT- Asset-A ($Million)	CFAT-Asset-B
			($Million)
	1	15	10
	2	3(	16
	3	45	28
	4	48	46

the rates should be rounded off to the