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

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Finance

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

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