Question: Project A Required Investment = RM40 ROIC = 16% Project B Required Investment= RM40 ROIC =13.50% Project C Required Investment= RM20 ROIC =13% Total Investment

Project A Required Investment = RM40 ROIC = 16% Project B Required Investment= RM40 ROIC =13.50% Project C Required Investment= RM20 ROIC =13% Total Investment Required Investment= RM100

The target capital structure is to use 50% Debt and 50% Equity. Net Income last year was RM40 and the company intends to pay dividends to the amount of RM10. The interest rate that banks will charge for any amount of loans is 8%. The Corporate Tax Rate is 30%. Fixed deposits rates in the market is currently 3%. This rate is considered risk free (RF). The stock market is forecasted to provide a return of 15% which will be used as the required return from the market. The unlevered beta for the company is 0.8. Any new shares issue will be charge a 3% flotation cost.

A. Which of the project can be chosen? Project A, B or C? What is formula calculation for cost of capital of the project chosen?

B. Based on answer for question A, what is the total amount of investment?

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