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(Astor Industrial Supply EMI Shielding 4% 4% 1 Risk Free Rate Unlevered beta MRP Debt % Equity Fabrication & Machining Risk Free Rate Unlevered beta MRP Debt % Equity 6% 40% 60% Astor Industrial Supply is a manufacturer and distributor of standard and custom gaskets, seals, converted products, and machined parts. It provides sealing and other industrial solutions to markets ranging from defense, aerospace, power generation, mining, wastewater treatment, electronics, pharmaceutical, and food and beverage. Custom Gaskets With over 200 years of combined expertise in the sealing industry, Astor Industrial Supply fabricates and distributes custom gaskets for customers in various industries including defense, aerospace, power generation, mining, electronics, pharmaceutical, and food and beverage. Astor has two operational divisions, EMI Shielding and Fabrication and Machinery, and currently is considering two new equipment for both operations 1.2 6% 30% 70% $4 million for 4 years 2 million per year Cash flow $3 million for 5 years Cash flow Initial Investment $1.5 million per year Initial Investment 2. What is the cost of capital for each division? 3. What is the net present value of each project? 4. Which project would you recommend? Explain your recommendation in detail. EMI Shielding As a fabricator and distributor of EMI shielding products. Astor Industrial Supply provides shielding solutions for the aerospace, defense, and electronics industries. Typically shielding is applied to enclosures, separating electrical devices from the outside world, and to cables, separating wires from the environment the cable runs through. The shielding can reduce the coupling of radio waves, electromagnetic fields, and electrostatic fields though not static or low frequency magnetic fields. The amount of reduction depends very much upon the material used, its thickness, and the frequency of the fields of interest. Fabrication & Machining Astor Industrial Supply offers a wide variety of machined and fabricated products with varying applications for a large industrial demographic. With your print, sketch or sample we can fabricate parts to meet your requirements. We also provide value added plastic fabrication services that complement your in-house resources. Our material lists are extensive allowing us to provide solutions for any environment. We use various adhesives and heat forming techniques to produce shields, enclosures, displays, and covers using acrylic, polycarbonate, ABS, and Sentra. Astor had combined earnings before interest and taxes of $110 million last year which 40 percent was from its EMI Shielding. Both the book and the market value of debt is $90 million and market equity capital of $210 million. The unlevered cost of equity is 12 percent while the pre-tax cost of debt is 8 percent. The tax rate is 28 percent. 1. What is the firm’s weighted average cost of capital? Astor management felt that the risk of each division is different, and they were not sure about using the corporate cost of capital to evaluate the two new projects. hus, the management decided to look at the risk-adjusted of capital for each division. Table below shows information for both projects:

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