which cost of capital should take to calculate the NPV

Dear Sir, this question is from June’12 Q no 1

Project 1
This is an investment in new machinery to produce a recently-developed product. The cost of the machinery, which
is payable immediately, is $1·5 million, and the scrap value of the machinery at the end of four years is expected to
be $100,000. Capital allowances (tax-allowable depreciation) can be claimed on this investment on a 25% reducing
balance basis. Information on future returns from the investment has been forecast to be as follows:
Year 1 2 3 4
Sales volume (units/year) 50,000 95,000 140,000 75,000
Selling price ($/unit) 25·00 24·00 23·00 23·00
Variable cost ($/unit) 10·00 11·00 12·00 12·50
Fixed costs ($/year) 105,000 115,000 125,000 125,000
This information must be adjusted to allow for selling price inflation of 4% per year and variable cost inflation of 2·5%
per year. Fixed costs, which are wholly attributable to the project, have already been adjusted for inflation. Ridag Co
pays profit tax of 30% per year one year in arrears.
Project 2
Ridag Co plans to replace an existing machine and must choose between two machines. Machine 1 has an initial
cost of $200,000 and will have a scrap value of $25,000 after four years. Machine 2 has an initial cost of $225,000
and will have a scrap value of $50,000 after three years. Annual maintenance costs of the two machines are as
follows:
Year 1 2 3 4
Machine 1 ($/year) 25,000 29,000 32,000 35,000
Machine 2 ($/year) 15,000 20,000 25,000
Where relevant, all information relating to Project 2 has already been adjusted to include expected future inflation.
Taxation and capital allowances must be ignored in relation to Machine 1 and Machine 2.
Other information
Ridag Co has a nominal before-tax weighted average cost of capital of 12% and a nominal after-tax weighted average
cost of capital of 7%.
Required:
(a) Calculate the net present value of Project 1 and comment on whether this project is financially acceptable
to Ridag Co. (12 marks)
(b) Calculate the equivalent annual costs of Machine 1 and Machine 2, and discuss which machine should be
purchased.

Note: my question is here, how did they take the 7% as cost of capital on on the part-a, while in the part-b, they took the 12%.? in general we always take the cost of capital before tax , is not it?