5. Inspirasi Bhd is planning to invest in a new project costing RM5 million. The capital structure of the company as at 31 December 2018 is as follows: Percentage (%) 5% Bond 25.00 6% Preference shares 17.50 Ordinary share capital 37.50 Share premium 6.25 Retained earnings 13.75 Total 100.00 Inspirasi Bhd proposes a mixture of debt and equity financing such as bond preferred and common stock to finance the project. The company plans to issue 5% bond with a nominal value of RM1,000 at net issued price of RM 1,150. Inspire Bhd will redeem the 5% bond after 10 years at nominal value. The issuance cost of RM50 per unit of bond will be incurred The 6% preferred stock with a nominal value of RM100 can be issued at RM120. The issuing price includes 10% flotation cost per share The ordinary shares are currently selling at RM3.50 per share. A flotation cost of 6% of the market price will be incurred for the issuance of new shares. The dividend paid was RM0.05 sen and it is expected to grow at 7% per annum. The company has allocated RM4.5 million of the retained earnings for re-investment purposes. Note: The corporate tax rate is 25% Inspirasi Bhd intends to undertake a project in an unrelated industry from its existing nature of business. However, a proxy company in the new industry will carry out the project. Below is the extract information of the proxy company Item Inspirasi Bhd Proxy/New Company Equity Beta (Be) 1.2 1.4 Value of Equity 1000 800 Value of Debt 400 500 Additional information: The risk free rate is 4% The average return on the market is 12% Note: Ignore Corporate Tax Evaluate the project specific discount rate for Inspirasi Bhd in the new industry. (marks) 5. Inspirasi Bhd is planning to invest in a new project costing RM5 million. The capital structure of the company as at 31 December 2018 is as follows: Percentage (%) 5% Bond 25.00 6% Preference shares 17.50 Ordinary share capital 37.50 Share premium 6.25 Retained earnings 13.75 Total 100.00 Inspirasi Bhd proposes a mixture of debt and equity financing such as bond preferred and common stock to finance the project. The company plans to issue 5% bond with a nominal value of RM1,000 at net issued price of RM 1,150. Inspire Bhd will redeem the 5% bond after 10 years at nominal value. The issuance cost of RM50 per unit of bond will be incurred The 6% preferred stock with a nominal value of RM100 can be issued at RM120. The issuing price includes 10% flotation cost per share The ordinary shares are currently selling at RM3.50 per share. A flotation cost of 6% of the market price will be incurred for the issuance of new shares. The dividend paid was RM0.05 sen and it is expected to grow at 7% per annum. The company has allocated RM4.5 million of the retained earnings for re-investment purposes. Note: The corporate tax rate is 25% Inspirasi Bhd intends to undertake a project in an unrelated industry from its existing nature of business. However, a proxy company in the new industry will carry out the project. Below is the extract information of the proxy company Item Inspirasi Bhd Proxy/New Company Equity Beta (Be) 1.2 1.4 Value of Equity 1000 800 Value of Debt 400 500 Additional information: The risk free rate is 4% The average return on the market is 12% Note: Ignore Corporate Tax Evaluate the project specific discount rate for Inspirasi Bhd in the new industry