NMH is evaluating the financing of a new project. The amount of investment capital required is...

 

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NMH is evaluating the financing of a new project. The amount of investment capital required is RM 15 million. The expected Earnings before Interest and Tax (EBIT) is RM4.9 million. NMH has an unleveraged beta of 1.2. The corporate tax rate is 30%. Stock Market Analyst have forecasted a 20% return from the Stock Market and the Risk-Free Rate stands at 3%. The following table shows the cost of debt available for each level amount of debt that NMH can obtain from the financial market. Debt Amount (RM) Cost of Debt (Rd) OM 8% 8% 9% 1.5M 3M 4.5M 6M 7.5M 10% 12% 13% Determine whether NMH should accept the project. Acceptance of the project should be based on the lowest Weighted Average Cost of Capital and the maximum Economic Value Added from the project. NMH is evaluating the financing of a new project. The amount of investment capital required is RM 15 million. The expected Earnings before Interest and Tax (EBIT) is RM4.9 million. NMH has an unleveraged beta of 1.2. The corporate tax rate is 30%. Stock Market Analyst have forecasted a 20% return from the Stock Market and the Risk-Free Rate stands at 3%. The following table shows the cost of debt available for each level amount of debt that NMH can obtain from the financial market. Debt Amount (RM) Cost of Debt (Rd) OM 8% 8% 9% 1.5M 3M 4.5M 6M 7.5M 10% 12% 13% Determine whether NMH should accept the project. Acceptance of the project should be based on the lowest Weighted Average Cost of Capital and the maximum Economic Value Added from the project.

Answer rating: 100% (QA)

Given the information provided NMH should not accept the project The cost of debt for the amount of ... View the full answer