FINANCIAL MANAGEMENT

Atrium Bhd. is a modium-sizod manufacturing company that plans to incroaso capacity by purchasing new machinery at an initial cost of RM 3.5 million. The following are the most recent financlal statements of the company: Variable administration and distribution expenses are expected to increase by RM220,000 per yoar as a result of the increase in capacity. In addition to the initial investment in new machinery. RM500,000 would need to be invested in working capital. The investment in working capital is released at the end of year 5 . The scrap value of the machinvery after five yoars is expected to be negligiblo. Tax lablities are paid in the year in which they arise and Atrium Bhd. pays tax at \30 of annual profits. In preparing its financial statements, Atrium Bhd. uses straight-line depreciation over the expected life of fixed assets. The company/s target capital structure is \30 dobt and \70 common stock. The yield to maturity on its bond is \10.5. The risk-free rale of retum \\( \\left(k_{k}\ ight) \\) is \5.5, and the market rate of return (kw) is 11\\%. The compeny's current beta is 1.81. Required: a. Calculate the company's weighted average cost of capital. (4 Marks) b. Calculate the net present value (NPV) of the proposed investment and comment on your findings. (21 Marks) The investment is expected to increase annual sales by 5,500 units. Investment in replacement machinery would be needed after five (5) years. Financial data on the additional units to be sold is as follows