Given company: tyro payments Ltd OPTIMAL LEVERAGE ANALYSIS Your group should discuss the implications of the various capital structure theories for optimal capital structure as they apply to your...

Given company: tyro payments Ltd

1. OPTIMAL LEVERAGE ANALYSIS

Your group should discuss the implications of the various capital structure theories for optimal capital structure as they apply to your assigned company, ( Tyro payments Ltd ) including:

• Trade-off theory

• The Modigliani and Miller Propositions

1. CASH FLOW AND CAPITAL BUDGETING

Your team was hired to analyse and estimate two alternative investment proposals. The first proposal calls for a major renovation of the company’s manufacturing facility. The second involves replacing just a few obsolete pieces of equipment in the facility. The company will choose one project or the other this year, but it will not do both. The cash flows associated with each project appear below and the firm discounts project cash flows at 15%.

Year Renovate Replace

0. -$9,000,000. -$2,400,000

1. 
   3,000,000. 2,000,000


2. 
   3,000,000. 800,000


3. 
   3,000,000. 200,000


4. 
   3,000,000. 200,000


5. 
   3,000,000. 200,000

Calculate the payback period of each project and based on this criterion, indicate which project you would recommend for acceptance.