Finance

The board of directors of the Brazilia Group has less capital than needed to fund a $6.2 million project in the Tt East. Had it been funded, an estimated i* of 18% per year would result. Corporate MARR = 15% has been applied for before-tax analysis. With the available $2.0 million in equity capital, a project with an estimated i* of 16.6% is approved. The group president just asked you to estimate the after-tax opportunity cost that has been forgone. Assume you collect the following information in preparation to answer him: Effective federal tax rate = 20% per year Effective state tax rate = 6% per year Equation for overall effective tax rate = state rate + (I – staterate) (federal rate) (Hint: First develop a drawing similar to Figure 1-6 for the Brazilia Group situation.)

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