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can i get clear answer plz, n tq in adv Kami Buat Semua Berhad (KBSB) is a conglomerate with businesses in many economic sectors like
can i get clear answer plz, n tq in adv
Kami Buat Semua Berhad (KBSB) is a conglomerate with businesses in many economic sectors like consumer products, plantation, real estate, and financial services, to name a few. KBSB is now contemplating venturing into internet technologies and services. The company is considering making a sizable investment in this area by setting up a new business division. To assess the commercial viability of this proposal, the relevant cash flows have been estimated. To discover the Net Present Value (NPV) of this investment, an appropriate discount rate has to be used. KBSB's weighted average cost of capital (WACC) is 10%. The average cost of capital of companies in the internet technologies and services sector is 14%. If KBSB decided to go ahead with this, it is most likely going to finance it via raising of new equity capital. KBSB's investment banker has projected that raising external equity capital is going to be particularly costly, given the current sentiments in capital markets, estimating the cost of external equity capital at about 19%. In your opinion, which rate should be used as the discount rate to compute NPV in this situation, and why? [5 marks]Step by Step Solution
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