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Urgent 4. Suppose you are working as Finance Manager for ACI Group. Already the Group has taken significant debt, and the ACI group is evaluating
Urgent 4. Suppose you are working as Finance Manager for ACI Group. Already the Group has taken significant debt, and the ACI group is evaluating the investment proposal. ACI is considering investing in either medicine or cement project. Medicine Project have a project life of 5 years, and the Cement Project have a project life of 6 years. Medicine Project will require an initial investment of $10,000. At the end of year 5, ACI estimates that Medicine Project can be sold to net $1,200, and at the end of year six, Cement Project can be sold to net $1,500. For Medicine Project, the cash flows over the five-year life of the project will be $2,000 in the first two years, $4,000 in the next two, and $5,000 in the last year. For Cement Project, the cash flows over the six-year life of the project will be $2,500 in the first two years, $3,500 in the next two, and $4,000 in the last two years. Cement Project will require an initial investment of $11,000. ACI feels that although Medicine Project has average tisk, Cement Project is considerably riskier. Cyclical nature of the business, the uncertainty of clinker prices, technology, environment, and slow pace of liberalization can affect the ACI group's cement business. Therefore, their team decides that ACI should use a discount rate of 11% for Medicine Project and 2% additional discount rate for Cement Project. What will be your recommendation for ACI? If they have to select just one project, which particular project should be selected? Show detailed calculation process
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