b) EE Holdings, Inc. is a new American manufacturer of batteries headquartered in St. Louis, Missouri. EE Holdings has just invented a new low-cost, long-lasting rechargeable battery for use in electric cars. EE Holdings is working on the business plan, and believe the firm will face similar market risk to SS Inc, which has a beta of 2.3. To develop the financial plan, estimate the cost of capital of financing the firm assuming a risk-free rate of 3% and a market risk premium of 7%. Calculate the cost of capital of the project of investment. Moreover, discuss the rationality of using SS Inc's Beta for EE Holding's new project.
c) "Qualitative factors play an important role in capital budgeting decisions. Although capital budgeting relies more on quantitative measures, there are abrupt influences of qualitative factors on capital budgeting decisions." Discuss the above statement including what are the qualitative and quantitative capital budgeting techniques, compare the advantages and disadvantages of those techniques and role of qualitative factors in decision making.
