BMP Corp is contemplating the acquisition of a plant which will cost the company RM150 million. The
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- 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%.
- i. Plan1 involves 100% financing through equity.
- ii. Plan2 entails financing 45% of the plant purchase by issuing a bond with an 8% yield.
- 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.
- Calculate the weighted average cost of capital for both plan 1 and plan2?
Related Book For
Introduction to Accounting An Integrated Approach
ISBN: 978-0078136603
6th edition
Authors: Penne Ainsworth, Dan Deines
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