Bloom Software Co, is trying to estimate its optimal capital structure. Bloom's current capital structure consists of 25% debt and 75% equity, however, management believes the firm should use more debt. The risk-free rate is 4%, the market risk premium is 8% and the firm's tax rate is 35%. Currently, Bloom's cost of equity is 20%. 12. What is Bloom's current beta factor? A,b=2,0 B. b=1.6 C. b=4.0 D. b=3.0 13. What is Bloom's business risk? A. b=2,46 B. b=1.64 C. b=3.28 D. b=1.31 14. What would Bloom's beta factor if it were to change its capital structure to 50% debt and 50% equity A. b=2.29 B,b=5,41 C. b=2.16 D. b=2.71 15. What would be Bloom's estimated cost of equity with the new capital structure? A. 21,3\% B. 223% C. 25,7% D. 47.3% You are evaluating a project for The Ultimate recreational tennis racket, guaranteed to correct that wimpy backhand. You estimate the revenue and operating cost of The Ultimate to be as follows: The project life is 5 years. The project requires the purchase of new equipment costing RM175,000 with modification of RM25,000. The salvage value at the end of year 5 is RM15,000. The new equipment qualifies for the accelerated capital allowance rates as follows: Year 1 30\%; Year 220%; Year 320%; Year 410%; Year 510%; and Year 610% on cost. Initial net working capital (NWC) investment is RM35,000 and then NWC will maintain at a level equal to RM45,000 thereafter. The NWC will be fully recovered at the end of the project life. You expect the sales of ACE which is similar to The Ultimate to decrease by RM40,000 and operating expenses will decrease by RM15,000. The beta factor of this investment is 1,0. The company targeted capital structure is 60% equity and 40% debt. The cost of debt after tax is 9%. The market rate of return is 14% and the riskfree is 4%. The tax rate is 26%. 4. What is the initial outlay of the project (t=0) ? A. (PM175,000) B. (M200,000) C. (AMZ35,000) D. (RM280.000) 5. What is the net cash flow for year 1(t=1) ? A. AMB 1,100 B. PM9,150 C. RMB9,600 D. RM134,600 What is the net cash flow for year 3(t=3) ? A. RM77,000 B. RM88,100 C. RM106,600 D. RM117,700 What is the present value of cash flow for year 5(t=2) ? A. RM37,393 B. RM46,132 C. RM49,848 D. RM52,430 What is the project's net present value (NPV)? A. RM22,676 B. RM26,999 C. RM96,942 D. RM81,101 6. What is the net cash flow for year 3(t=3) ? A. RM77,000 B. RM88,100 C. RM106,600 D. RM117,700 7. What is the present value of cash flow for year 5(t=2) ? A. RM37,393 B. RM46,132 C. RM49,848 D. RM52,430 8. What is the project's net present value (NPV)? A. RM22,676 B. RM26,999 C. RM96,942 D. RM81,101 You are evaluating a project for The Ultimate recreational tennis racket, guaranteed to correct that wimpy backhand. You estimate the revenue and operating cost of The Ultimate to be as follows: The project life is 5 years. The project requires the purchase of new equipment costing RM175,000 with modification of RM25,000. The salvage value at the end of year 5 is RM15,000. The new equipment qualifies for the accelerated capital allowance rates as follows: Year 1 30%; Year 2 - 20\%; Year 3 - 20\%;; Year 410%; Year 510%; and Year 610% on cost. Initial net working capital (NWC) investment is RM35,000 and then NWC will maintain at a level equal to RM45,000 thereafter. The NWC will be fully recovered at the end of the project life. You expect the sales of ACE which is similar to The Ultimate to decrease by RM40,000 and operating expenses will decrease by RM15,000. The beta factor of this investment is 1.0. The company targeted capital structure is 60% equity and 40% debt. The cost of debt after tax is 9%. The market rate of return is 14% and the risk. free is 4%. The tax rate is 26%. 4. What is the initial outlay of the project (t=0) ? A. (RM175,000) B. (RM200,000) C. (RM235,000) D. (RM280,000) 5. What is the net cash flow for year 1(t=1) ? A. RMA1,100 B. RMG9,150 C. AMA9, 600 D. RM134,600 Bloom Software Co, is trying to estimate its optimal capital structure. Bloom's current capital structure consists of 25% debt and 75% equity, however, management believes the firm should use more debt. The risk-free rate is 4%, the market risk premium is 8% and the firm's tax rate is 35%. Currently, Bloom's cost of equity is 20%. 12. What is Bloom's current beta factor? A,b=2,0 B. b=1.6 C. b=4.0 D. b=3.0 13. What is Bloom's business risk? A. b=2,46 B. b=1.64 C. b=3.28 D. b=1.31 14. What would Bloom's beta factor if it were to change its capital structure to 50% debt and 50% equity A. b=2.29 B,b=5,41 C. b=2.16 D. b=2.71 15. What would be Bloom's estimated cost of equity with the new capital structure? A. 21,3\% B. 223% C. 25,7% D. 47.3%