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One Global Corporation requires RM15 million to finance its project that results in after-tax cash inflows of RM3.75 million each year for 6 years. The
One Global Corporation requires RM15 million to finance its project that results in after-tax cash inflows of RM3.75 million each year for 6 years. The company would like to maintain its present debt-to-equity ratio of 0.60. One Global corporation's systematic risk is 1.2. Treasury bills rate is 5 percent and market risk premium is estimated at 8 percent. Additionally, the firm's pre-tax cost of debt is 13 percent, the flotation cost of equity and debt are 5 percent and 8 percent respectively. The corporate tax rate is 40 percent. Calculate: i) The firm's weighted average cost of capital. (4 marks) ii) The NPV of the project if the flotation costs are to be ignored. (3 marks) ii) The firm's weighted average flotation cost. (2 marks) iv) The amount of flotation cost for the proposed financing. (2 marks) v) The NPV of the project if flotation costs are to be considered. Justify if the firm should accept or reject the project. (4 marks)
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