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Star Tech Ltd is considering an investment with raising $150,000 equity and $50,000 bank loan. The firms cost of equity is 5% and after-tax cost

Star Tech Ltd is considering an investment with raising $150,000 equity and $50,000 bank

loan. The firms cost of equity is 5% and after-tax cost of debt is 7%. The investment is

expected to generate a net operating profit after tax of $50,000.

(a)

Calculate the Economic value added (EVA) for the investment?

(b)

Should the firm accept or reject the investment? Explain your reason(s).

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