[Weng Kit]

Okayy 🙂 Thanks for the help ! Much appreciated !

[Weng Kit]

owhh.. i get it. so it shud be WACC= 3/4(0.14)+1/4(0.0631) = 12.08% [0.09012x(1-0.3)]=0.0631 right?

So, how do i make assumptions? I’ve watched your lecture videos though.

[Weng Kit]

Yup, i calculated the IRR which results in 0.09012.
So based on the answers given as follows:
– The risk of the new project will be identical to the average risk of the existing company;
– the new project will not cause the company’s optimal capital structure to change;
– the systematic risk (Beta), the risk free rate and the expected return on the market portfolio will remain constant over the life of the project;
– the cost of new funds will remain the same as the existing costs.

May i know how to justify them?

[Author]

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