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Question 1: You are currently evaluating a new project for your company. The project requires an...

Question 1:

You are currently evaluating a new project for your company. The project requires an initial investment in equipment RM 90,000 and an investment in working capital of RM10,000 at the beginning (t=0). The project is expected to produce sales revenues of RM120, 000 for three years. Manufacturing costs are estimated to be 60% of the revenues. The asset is depreciated over the project’s life using straight-line depreciation method. At the end of the project (t=3), you can sell the equipment for RM10, 000. The corporate tax rate is 30% and the cost of capital is 15%. Should you accept the project? Why?

Question 2:

The market value of Chakrawala Corporation’s common stock is RM20 million and the market value of its risk-free debt is RM5 million. The beta of the company’s common stock is 1.25 and the market risk premium is 8%. If the Treasury bill rate is 5%, what is the company’s cost of capital? (Assume no tax).

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Expert Solution

jeff jeffy answered 10 months ago
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