Sakaran Dadai is thinking of launching a project which with a 3 year lifespan. Currently Sakaran Dandai is utilizing cost of capital of 18% for this project and the tax rate is at 35%. Base on his analysis, he has prepared the following cash flow projections: (Year) 0 1 2 3 Sales (RM) 250,000 300,000 350,000 / Cost of Goods Sold (60% of Jualan/ Sales)(RM) 150,000 180,000 210,000 Interest Expense 30,000 40,000 50,000 Depreciation 60,000 70,000 80,000

Changes to working capital 10,000 12,000 6,000 Capital expenditures 150,000

i) Calculate the Free Cash Flow for year 1, 2 and 3 (5 marks/markah) ii) Calculate the NPV and IRR for this project? (3.5 markah/ marks) iii) Rahman & Associates has invested in a machine producing key chain and estimated to last for 2 years. The machine priced at RM50,000 and depreciated using a straight line. The key chain sales expected to increase to 3,000 in year one and increase by 10% in year 2. The price per key chain is RM5 and the cost of goods sold per key chain is RM2. Rahman expected to allocate 3% of its annual sales into cash, 6% of its annual sales into accounts receivable, 10% of its annual cost of goods sold into inventory, and 6% of its annual cost of goods sold into accounts payable. The firm is in the 35% tax bracket and has a cost of capital of 9%. What is the net working capital for year 1 and year 2? (4 markah/ marks) [Subtotal: 12.5 markah/marks]

b) AlHambra Sdn Bhd is interested in calculating the cost of each type of capital as well as the weighted average cost of capital. Previously, the firm had raised capital as per the proportions shown in table 3-1. Table 3.1 Capital Structure Source of Capital Weight Long-term Debt / 35% Preferred Stock/ 12% Common Stock 53%

Common stock: Current price of Alhambra common stock is RM40 per share. The dividend is expected to be disbursed next year at RM4.00 per share. The dividend has been growing at 6 percent and expected to continue at that rate. The floatation cost is expected at RM4 per share. As an analyst at Alhambra Company, you are required to calculate the followings: i. Calculate the after-tax cost of debt. (3 markah/marks) ii. Calculate the cost of preferred stock. (3 markah/marks) iii. Calculate the cost of issuing new common stock. (3 markah/marks)

iv. Calculate the firms weighted average cost of capital using new common stock as equity source and the capital structure weights as shown in table 3-1.