Comet Islamic Bank is deciding to open a new branch. Consistent with the company policy (and industry practice), the bank current capital structure is highly leveraged. Comet Islamic Bank's debt is almost exclusively in the form of demand, savings and time deposits. Recently the interest rates have climbed sharply, and as a result Comet Islamic Bank presently pays an average annual rate of 6.25 percent on its customers' deposit accounts in order to remain competitive. In addition, the bank incurs a service cost of 3.75 percent per account for the debt.

Comet Islamic Bank's President, Dato' Raha Samsuddin, has stipulated that the new branch project will be financed by 90 percent debt. The bank cost of equity capital is 11 percent. Comet Islamic Bank marginal tax is 23 percent.

i) Determine the weightage average cost of capital of the new branch.

ii) If the expected return from the new branch is 8.5 percent, discuss weather Comet Islamic Bank should proceed with opening the new branch or not.