Part One:
a) Calculate the Weighted Average Cost of Capital
WACC: Weight of Debt* Cost of Debt(1-Tax rate) + Weight of Equity* Cost of Equity
WACC:[( 200000/400000)* 0.09(1-.22)] + [(200000/400000)* .15]
WACC: 0.0351+ .0300
WACC: 6.51%
*WACC that is also known as Cost of Capital will be used further to discount the cash flows of the company.
b)Calculation of Capital Allowance and Tax Payable on each project:
Project A:
Tax depreciation
Capital Allowance and tax liability
*Assuming that business loss for Year 1 will not be carry-forward to be offset from Year 2 profit and also there is no minimum ...