BND Sdn Berhad net income for end of the year 2021 is RM9 million. The net...

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BND Sdn Berhad net income for end of the year 2021 is RM9 million. The net income is after deducting tax. The corporate tax rate is 25%. The company is considering the purchase of a plant that will cost RM50 million. The purchase of the plant is expected to provide a return on invested capital ROIC of 19.5%. The forecast Earings Before Interest and Tax (EBIT) is RM13 million. The company is evaluating 2 financial plans for the purchase. i. ii. A similar company in the stock market that uses the same debt structure has a systematic risk of 1.3. The stock market average return is 20%. The fixed deposit rate offered by banks currently is 2.8%. The stock market regards this fixed deposit rate as free of any risk. Calculate the systematic risk for Plan 1. a. b. C. d. Plan1: 100% financing with equity Plan2: Financing 30% of the purchase of the plant by issuing a bond with a coupon rate of 8% e. What is the cost of equity if the company decides on financing Plan 1? (5 Marks) (5 Marks) Calculate the weighted average cost of capital if the company chooses Plan 2? (10 Marks) Based on your analysis, should the company go ahead with the purchase of the plant and which financing plan should the company choose. (15 Marks) Calculate the Net Operating Profit After Tax (NOPAT) and the Economic Value Added (EVA) of the plant. Is there any difference to your decision based on the calculations of the EVA and the decision of part d? BND Sdn Berhad net income for end of the year 2021 is RM9 million. The net income is after deducting tax. The corporate tax rate is 25%. The company is considering the purchase of a plant that will cost RM50 million. The purchase of the plant is expected to provide a return on invested capital ROIC of 19.5%. The forecast Earings Before Interest and Tax (EBIT) is RM13 million. The company is evaluating 2 financial plans for the purchase. i. ii. A similar company in the stock market that uses the same debt structure has a systematic risk of 1.3. The stock market average return is 20%. The fixed deposit rate offered by banks currently is 2.8%. The stock market regards this fixed deposit rate as free of any risk. Calculate the systematic risk for Plan 1. a. b. C. d. Plan1: 100% financing with equity Plan2: Financing 30% of the purchase of the plant by issuing a bond with a coupon rate of 8% e. What is the cost of equity if the company decides on financing Plan 1? (5 Marks) (5 Marks) Calculate the weighted average cost of capital if the company chooses Plan 2? (10 Marks) Based on your analysis, should the company go ahead with the purchase of the plant and which financing plan should the company choose. (15 Marks) Calculate the Net Operating Profit After Tax (NOPAT) and the Economic Value Added (EVA) of the plant. Is there any difference to your decision based on the calculations of the EVA and the decision of part d?

Answer rating: 100% (QA)

a To calculate the systematic risk for Plan 1 we need to find the beta of the companys stock Since there is no information provided on the companys be... View the full answer