You have just been appointed as the finance manager of JSJ Co., a private company specializing in the production of frozen foods. The company has a paid-up share capital of RM1,000,000 that is fully equity-financed equally by three executive partners and has been operating for two years. The partners are looking towards growing the business by investing in a factory that currently specializes in producing aftermarket vehicle parts. The partners understand that the new investment must be discounted by JSJ's cost of capital. They therefore seek your advice on the following:

a)What would be the appropriate method for estimating JSJ's cost of capital? Justify your choice of method in relation to JSJ's company profile.

(7 marks)

b)Can JSJ's cost of capital be used to evaluate the investment in the new factory?

Why or why not? Discuss three (3) additional factors that need to be considered when making this evaluation?

(8 marks)