SUM Co. has been successfully producing and selling electrical appliances for the past twenty years and is considering a possible expansion of its existing product line. The CEO has recently proposed a new initiative to enter the relatively high-quality designer desk lamp market with relatively high margin. A consulting firm was hired to report on the potential market for the proposed premium desk lamp project. The consulting firm provide you with a concise report. The followings data and information of proposed premium desk lamp project has been extracted from the report and summarized in the table below: Year /company Info $000 Sales revenues Variable expenses Fixed expenses Depreciation expenses Operating income sometime, Tax at 21% you Operating income after tax s related 1 1800 720 10 400 670 need 2 1648 659 10 400 579 3 1273 509 10 400 354 114 4 874 350 10 10 400 400 to project and relative 5 450 180 Additional information The equipment cost is $2000 and is expected to have a salvage value of $100 The debt ratio is 20% when measured at market value and 32% when measured at book value. The debt carries an interest rate of 4.5 % Required: (a) Estimate the cost of equity. (2marks) (b) Discuss the CAPM assumptions. (2marks) (c) Estimate the after-tax cost of debt. (2marks) (140) this negativ The risk-free rate is the prevailing rate on 10-year government bond rate is 3.5 % and market risk premium is 5.5%. SUN's beta is 1.14. Corporation tax rate is 21% (d) Estimate the weighted average cost of capital. (3 marks) (e) Calculate the total after-tax cash flow. (3marks) (f) Assess whether SUN Co should undertake the investment using NPV method. You should include a discussion of what other information would be useful to BW Co in making the investment decision. All relevant calculation must be included in your answer. (3marks) (g) Discuss the advantages and limitations of NPV method used in (e) above. (3marks)