Mat Kilau Sdn. Bhd. needs to set up the new branches. The company estimates after- tax...

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Mat Kilau Sdn. Bhd. needs to set up the new branches. The company estimates after- tax cash flow from the operation from new branches will be RM2 million per year perpetually. Mat Kilau Sdn. Bhd. has a market value debt equity ratio of 60 percent. The firm's cost of equity is 12 percent and pre-tax cost of debt is 7 percent. The floatation cost of debt and equity are 2.5 percent and 9 percent respectively. The total cost for setting up the new branches is RM20 million. The corporate tax rate is 35 percent. Calculate i) Weighted Average Cost of Capital (WACC). iii) iv) v) Net Present Value (NPV) if the flotation cost is to be ignored. Weighted Average Flotation Cost (WAFC). Amount of flotation cost for proposed financing. Net Present Value (NPV) if the flotation cost is to be considered. (4 marks) (2 marks) (2 marks) (4 marks) (3 marks) Mat Kilau Sdn. Bhd. needs to set up the new branches. The company estimates after- tax cash flow from the operation from new branches will be RM2 million per year perpetually. Mat Kilau Sdn. Bhd. has a market value debt equity ratio of 60 percent. The firm's cost of equity is 12 percent and pre-tax cost of debt is 7 percent. The floatation cost of debt and equity are 2.5 percent and 9 percent respectively. The total cost for setting up the new branches is RM20 million. The corporate tax rate is 35 percent. Calculate i) Weighted Average Cost of Capital (WACC). iii) iv) v) Net Present Value (NPV) if the flotation cost is to be ignored. Weighted Average Flotation Cost (WAFC). Amount of flotation cost for proposed financing. Net Present Value (NPV) if the flotation cost is to be considered. (4 marks) (2 marks) (2 marks) (4 marks) (3 marks)

Answer rating: 100% (QA)

i Weighted Average Cost of Capital WACC First we need to calculate the cost of debt and equity after flotation costs Cost of Debt Pretax Cost of Debt ... View the full answer