VERY URGENT

Kossan Rubber Industries Bhd (KRI) is one of the leading producers of latex disposable gloves in the world and the largest technical rubber products manufacturer in Malaysia. In line with the spike in global demand for such products arising from the waves after waves of coronavirus pandemic attack that swept across the globe recently, KRI expects that the firm will continue to record a healthy growth in its global sales, in particularly from Japan, which contributes significantly to its total annual revenues. KRI estimates that it will receive 18 million in Japanese Yen () after taxes at the end of each year for the next 4 years. The annual risk-free interest rate in Malaysia is 1.7% while in Japan is 0.1%. Interest rate parity exists and KRI believes in forward rate is a good predictor of future exchange rate. Assuming KRI has a capital structure of 40% debt and 60% equity. Its corporate tax rate is 25%. It can borrow from its bank at 10% on a per annum basis. KRI also expects that the FTSE Bursa Malaysia KLCI annual stock market return will be 10%. KRI stocks beta is 1. The RM spot rate is presently at 27. KRI is approached by a Malaysia-based Japanese firm that requires and the Japanese firm offers to exchange KRIs receivables for RM at a fixed exchange rate of 24 (net of tax) over each of the next 4 years. KRI is deliberating to accept or decline this offer.

(i) Determine KRIs weighted average cost of capital. (4 marks)

(ii) Determine the net present value (NPV) of the receivables if KRI chooses to decline the offer. (Hint: You may show your answers in tabular form) (10 marks)

(iii) Determine the NPV of the receivables if KRI chooses to accept the offer. (Hint: You may show your answers in tabular form) (4 marks

) (iv) Advise KRI whether to accept the offer or otherwise. (2 marks)