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Which of the given projects should the firm accept

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Question: InTech Corporation, a computer software firm which has never paid dividends before, is considering whether it should start doing so. This firm has a cost of equity of 22% and a cost of debt of 10% (the tax rate is 40%). The firm has $100 million in debt outstanding and 50 million shares outstanding, selling for $10 per share. The firm currently has net income of $90 million and depreciation charges of $10 million. It also has the following projects available:

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The firm plans to finances its future capital investment needs using 20% debt.

a. Which of these projects should the firm accept?

b. How much (if any) should the firm pay out as dividends?

Reference no: EM131690299

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