• BMP Corp is contemplating the acquisition of a plant which will cost the company RM150 million. The projected Earnings Before Interest and Tax (EBIT) stand at RM20 million. Two financial plans are under consideration for the acquisition, with a corporate tax rate of 25%. 
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• i. Plan1 involves 100% financing through equity.
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•  ii. Plan2 entails financing 45% of the plant purchase by issuing a bond with an 8% yield.
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•  For comparison purposes a similar company in the stock market with a capital structure of 20% debt and 80% equity has a systematic risk of 1. The stock market's average return is 20%. Currently the fixed deposit rate offered by banks stands at 2.8%, and the stock market considers this fixed deposit rate to be without any risk. 
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• Calculate the weighted average cost of capital for both plan 1 and plan2?

Answer rating: 100% (QA)

To calculate the weighted average cost of capital WACC for Plan 1 and Plan 2 we need to consider the ... View the full answer