i Explain how wrong calculation of the cost of capital of a project leads to incorrect choice of a project. ii Explain the superiority of the Security Market Line (SML) approach as compared to the...

i Explain how wrong calculation of the cost of capital of a project leads to
incorrect choice of a project.

ii Explain the superiority of the Security Market Line (SML) approach as
compared to the dividend valuation model.

iii A company is faced with the choice of one of two investment opportunities A
and B. The initial cost of each is Rs.200,000 and their estimated cash flows are
as follows.
Year Cash Flows (Rs.) – A Cash Flows (Rs.)
- B
1 200,000 40,000
2 240,000 60,000
Assuming a cost of capital of 7% calculate (year 1: .935; year 2: .873)
a. NPV
b. The yield rate of each project
c. Say which project you would select