the investment proposals | My Assignment Tutor

10:36UManitobauniversityofmanitoba.desire2learn.comproposal are included below. Mr. Starkwants you to recommend if CHIshould invest in one, both, or none ofthe investment proposals.Required ReturnMr. Stark wants you to use theweighted average bond yield for yourrequired return. The total marketvalue of debt CHI is expected to havegoing into this investment is $3.5B,which includes the additional $1.5B tobe taken on that is not included in thecurrent financial statements. Thecurrent outstanding debt has aninterest rate of 5%, while the newdebt’s interest rate is now expected tobe lower at 3%. All of the $3.5B indebt is in the form of bonds. Ignoreincome tax effects when calculatingthe required return (i.e., do not takethe after-tax cost of debt). Usecurrent interest rates as a proxy forbond yieldInvestment in Manufacturing &Distribution2Mr. Stark has decided that rather thanpurchase a distribution company, CHIwill expand one of its currentmanufacturing facilities to help meetthe growing sports apparel demand inCanada, including the delivery ofthese products to the existing storenetwork.The manufacturing facility currentlyoperates at capacity, manufacturing400,000 products annually that areultimately sold in CHI stores withinthe fiscal year. The facility waspurchased for $7,000,000 ten yearsago. With the expansion, CHI willhave the ability to double the amountof products it can produce. Thecompany expects to increaseproduction by 75% in the


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