Makem Fly Ltd (MFL) is a company that provides logistic services to the aviation industry in Australia. It has two business units, located in Bendigo and Newcastle. MFL applies a hurdle rate of 25% as its expected return on projects The table below contains information relating to these business units.

Business Unit	Assets ($m)	Capital Allocated ($m)	Risk Adjusted Net Income ($m)	Economic Capital ($m)
Bendigo	8,000	5,000	2,100	3,480
Newcastle	13,500	9,000	3,300	6,175

The correlation between the business units has been estimated at 0.72

MFL is considering a re-allocation of capital within the firm and has decided to allocate capital to the Newcastle business unit using the Splitting Method. Based on the information above, determine the total allocation of capital required to cover the economic capital requirement in Newcastle.

Answer rating: 100% (QA)

Based on the information given the relationship between the business ... View the full answer