What is tax equity investment?

Two investment alternatives are to be economically evaluated. Both projects require initial capital outlay...?

• Two investment alternatives are to be economically evaluated. Both projects require initial capital outlay of $1000. Project A will a net before income tax cash flow of $290 per year for the first 5 years. Project B will generate a net before tax cash flow of $210 per year for the first 4 years, and $700 in the 5th year. The rate of equity is 7%, the interest rate on debt is 10%, the corporate tax rate is 44%, and the debt weight is 30% (i.e. equity = $700 and debt = $300). Assume the debt repayment follows a constant ratio debt schedule, and the loan is paid back in 5 years. Calculate the NPV, IRR, and GRR (assuming a reinvestment rate of 7%) with the following methods: a) Weighted Average Cost of Capital b) Arditti-Levy c) Equity Residual

• Answer:

  Stocks investment is a bad choice