Arena follows: Project Name Icarus Lazarus Potus Initial Investment RM1.0 million RM1.5 million RM2.5 million Expected Return (%) 14 17 12 The company is planning to finance the project through equity and debt, 40 percent and 60 percent respectively. For the first RM800,000 the after-tax cost of debt would be 9 percent and any additional funds to be raised by debt would incur 10 percent cost. The company has retained earnings of RM900,000 with a required rate of return of 15 percent. The cost of issuing new common stock is 20 percent.
Arena follows: Project Name Icarus Lazarus Potus Initial Investment RM1.0 million RM1.5 million RM2.5 million Expected Return (%) 14 17 12 The company is planning to finance the project through equity and debt, 40 percent and 60 percent respectively. For the first RM800,000 the after-tax cost of debt would be 9 percent and any additional funds to be raised by debt would incur 10 percent cost. The company has retained earnings of RM900,000 with a required rate of return of 15 percent. The cost of issuing new common stock is 20 percent.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Arenas Enterprise is considering to invest in one of the three projects. The projects are as
follows:
Project Name
Icarus
Lazarus
Potus
Initial Investment
RM1.0 million
RM1.5 million
RM2.5 million
Expected Return
(%)
14
17
12
The company is planning to finance the project through equity and debt, 40 percent and 60
percent respectively. For the first RM800,000 the after-tax cost of debt would be 9 percent and
any additional funds to be raised by debt would incur 10 percent cost. The company has
retained earnings of RM900,000 with a required rate of return of 15 percent. The cost of issuing
new common stock is 20 percent.
a) Construct the weighted marginal cost of capital
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