Weighted average cost of capital-tenaga nasional berhad

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Tenaga Nasional Berhad (TNB) is considering RM40 million projects in its power system division. Mr. Fazrul Rahman, the company's chief financial officer, has evaluated the project and determines that the project's unlevered cash flow will be RM2.6 million per year in perpetuity. Mr. Fazrul Rahman has revised two possibilities for raising initial investment: Issuing 10 year bonds or issuing common shares. TNB's cost of debt is 7.2 percent, and its cost of equity is 11.4 percent. The company target RM32 million as debt and RM8 million as common shares. TNB is in the 34 percent tax bracket. By using Weighted Average Cost of Capital (WACC), should TNB accept the project? State the reason.

Reference no: EM132602456

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