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

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Finance

Question 1:
You are currently evaluating a new project for your company. Theproject requires an initial investment in equipment RM 90,000 andan 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% ofthe revenues. The asset is depreciated over the project’s lifeusing straight-line depreciation method. At the end of the project(t=3), you can sell the equipment for RM10, 000. The corporate taxrate is 30% and the cost of capital is 15%. Should you accept theproject? Why?
Question 2:
The market value of Chakrawala Corporation’s common stock isRM20 million and the market value of its risk-free debt is RM5million. The beta of the company’s common stock is 1.25 and themarket risk premium is 8%. If the Treasury bill rate is 5%, what isthe company’s cost of capital? (Assume no tax).

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Question 1:You are currently evaluating a new project for your company. Theproject requires an initial investment in equipment RM 90,000 andan 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% ofthe revenues. The asset is depreciated over the project’s lifeusing straight-line depreciation method. At the end of the project(t=3), you can sell the equipment for RM10, 000. The corporate taxrate is 30% and the cost of capital is 15%. Should you accept theproject? Why?Question 2:The market value of Chakrawala Corporation’s common stock isRM20 million and the market value of its risk-free debt is RM5million. The beta of the company’s common stock is 1.25 and themarket risk premium is 8%. If the Treasury bill rate is 5%, what isthe company’s cost of capital? (Assume no tax).