VV Corporation is considering an expansion project that requires an initial investment of RM$50$ million. The project will generate the following cashflows.

year Cash Flow $($RM million$)$

$110$

$210$

$310$

$410$

$510$

$610$

$710$

The company is eligible to borrow at the following interest rate.

Amount Borrowed $($RM million$)$ Interest Rate

$58\%$

$108\mathrm{.}25\%$

$158\mathrm{.}75\%$

$209\%$

$2510\%$

$3010\mathrm{.}5\%$

Loans More than $3011\%$

A company similar to VV with $30\%$ debt in its capital structure has a beta of $1\mathrm{.}2.$ The risk$-$free rate which is based on an annual fixed deposit rate is $3\%$ while the return of the market is $18\%.$ VV currently is in the $30\%$ tax bracket. VV made it a point to accept investment decisions only on projects with positive NPVs$.$

a$.$ Determine the appropriate capital structure to finance the project.

$(40$ Marks$)$

b$.$ Recommend whether VV should accept the project.

$(20$ Marks$)$