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Please help me i will give good rating Question 3 a) Thomson Bhd. has a target debt to equity ratio of 0.65. The debt consists
Please help me i will give good rating
Question 3 a) Thomson Bhd. has a target debt to equity ratio of 0.65. The debt consists of 7.5 percent semi-annual coupon bonds with a maturity of 15 years. The bond is currently sell at 95.65 percent of par, and the par value is RM1,000. The firm's stock is currently priced at RM38 per share, has a beta of 1.15, market risk premium of 7.5 percent, and risk-free rate is 5 percent. The firm's tax rate is 21 percent. Compute the appropriate discount rate if the firm is evaluating a new project that has the same risk as the firm's typical project. b) Explain under what circumstances that dividend growth model is used to estimate the cost of equity. c) Rocky Bhd. is considering to purchase a new machine which costs RM400,000. The machine will generate revenues of RM150,000 per year for five years. The cost of materials and labour is estimated to be RM40,000 per year, and other expenses is RM5,000 per year. The machine can be scrapped for RM50,000 at the end of the project and it will be depreciated on a straight-line basis over its 5-year life. The corporate tax rate is 22 percent and the cost of capital is 13 percent. Should Rocky Bhd. purchase the machine? d) Discuss the general rules to identify the relevant project cash flowsStep by Step Solution
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