Jimbo plc. is a UK based pharmaceutical company, and the following information regarding the financial position of the company is provided by their financial director Ms. Jones:Number of shares outstanding 15,000,000 Market value of debt (AA rating) £30,000,000 Expected yield of the debt 8%Corporate tax rate 30%Risk-free rate 3%Market risk premium 5% Current share price £2.00 Beta value of the share 1.60 In addition, Ms. Jones is considering two mutually exclusive projects by taking extra finance, and cash flows of each project are shown below:Points in time (yearly intervals) Project A (£) Project B (£)0 -12,000-10,0001 5,0004,0002 5,0004,0003 5,0004,000
i)Calculate the weighted average cost of capital of Jimbo plc.
ii)Advise Ms. Jones which project to undertake by applying net present value (NPV) approach. Assuming weighted average cost of capital is the appropriate discount rate.