Contemporary Engineering Economics 6th Edition by Chan Park

تمرين 10

Consider the two mutually exclusive machines given in Table.
TABLE 13
The initial investment will be financed with 70% equity and 30% debt. The before-tax debt interest rate, which combines both short-term and long-term financing, is 10% with the loan to be repaid in equal annual installments over the project life. The equity interest rate ( i e ), which combines the two sources of common and preferred stock, is 15%. The firm's marginal income tax rate is 35%.
(a) Compare the alternatives using i e = 15%. Which alternative should be selected
(b) Compare the alternatives using k. Which alternative should be selected
(c) Compare the results obtained in parts (a) and (b).