Matu is a well-diversified public limited company. It has a debt:equity ratio of 1:3, an equity beta of 2.25 and a pre-tax cost of debt of 5 per cent.

The company is considering the purchase of a new machine costing $120m, which would enable it to diversify into a new line of business. The machine would have a three-year life, after which it would have no residual value. The machine would generate estimated net cash inflows of $52m a year. The supplier of the machine is willing to lend Matu half of the machines capital cost at a rate of 3 per cent. The remainder will be financed equally by debt and equity. The issue costs on the commercial debt will be 1 per cent and the equity issue will incur costs of 3 per cent.

A firm thats already in the trade of the new project has a leverage/gearing ratio of 1:4 and a cost of equity of 18.1 per cent. Its corporate debt is risk free.

A government grant of 10 per cent of the initial capital cost of the machine is available. Matu anticipates that this would be received after one year.

Matu is a well-diversified public limited company. It has a debt:equity ratio of 1:3, an equity beta of 2.25 and a pre-tax cost of debt of 5 per cent.

The company is considering the purchase of a new machine costing $120m, which would enable it to diversify into a new line of business. The machine would have a three-year life, after which it would have no residual value. The machine would generate estimated net cash inflows of $52m a year. The supplier of the machine is willing to lend Matu half of the machines capital cost at a rate of 3 per cent. The remainder will be financed equally by debt and equity. The issue costs on the commercial debt will be 1 per cent and the equity issue will incur costs of 3 per cent.

A firm thats already in the trade of th

Matu is a well-diversified public limited company. It has a debt:equity ratio of 1:3, an equity beta of 2.25 and a pre-tax cost of debt of 5 per cent.

The company is considering the purchase of a new machine costing $120m, which would enable it to diversify into a new line of business. The machine would have a three-year life, after which it would have no residual value. The machine would generate estimated net cash inflows of $52m a year. The supplier of the machine is willing to lend Matu half of the machines capital cost at a rate of 3 per cent. The remainder will be financed equally by debt and equity. The issue costs on the commercial debt will be 1 per cent and the equity issue will incur costs of 3 per cent.

A firm thats already in the trade of the new project has a leverage/gearing ratio of 1:4 and a cost of equity of 18.1 per cent. Its corporate debt is risk free.

A government grant of 10 per cent of the initial capital cost of the machine is available. Matu anticipates that this would be received after one year.

e new project has a leverage/gearing ratio of 1:4 and a cost of equity of 18.1 per cent. Its corporate debt is risk free.

A government grant of 10 per cent of the initial capital cost of the machine is available. Matu anticipates that this would be received after one year.

1 Excel sheet with clear workings and a

2. word document (not exceeding four pages) describing in detail the calculations, underlying theoretical concepts and conclusions/inferences from the results