Calculate the new weighted average cost of capital

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The EllyMelly Textile is considering a new project it considers to be a little riskier than its current operations. Thus, management has decided to add an additional 1.7 percent to the company's overall cost of capital when evaluating this project. The project has an initial cash outlay of RM70,000 and projected cash inflows of RM20,000 in year one, RM18,000 in year two, and RM40,000 in year three. The firm uses 35 percent debt and the balance is common stock as its capital structure. The company's cost of equity is 16 percent, the cost of debt before tax for the firm is 8 percent and the tax rate is 25 percent).

Question 1: Calculate the projected net present value of the new project.

Question 2: Discuss other methods that can be used to calculate the new weighted average cost of capital for EllyMelly Textile

Reference no: EM132916722

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