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FINANCIAL MANAGEMENT

The company has a fund of RM340,500.00 in the bank account. To increase the fund, the
company decided to take a bank loan for additional amount of RM250,000.00. With interest
rate of 4% each month

Month Amount Owe at The Interest Owed for That Amount Owed at
Beginning of The Month 4% (RM) The End of The
Month (RM) Month (RM)

1 250,000.00 10,000.00 260,000.00

2 260,000.00 10,400.00 270,400.00

3 270,400.00 10,816.00 281216.00

4 281,216.00 11,248.64.00 292,464.00

5 292,464.64 11,698.59 304,163.23

6 304,163.23 12,166.53 316,329.76

7 316,329.76 12,653.19 328,982.95

8 328,982.95 13,159.32 342,142.27

9 342,142.27 13,685.70 355,827.97

10 355,827.97 14,233.12 370,050.00

Borrowed RM250,000.00

N = 10 month

i = 4% per month

F = P(F/P, I n)

F = RM250,000.00 (F/P, 4%, 10)

F = RM250,000.00 (1.4802)

F = RM 370,050.00
CASH FLOW DIAGRAM

RM
RM727640.00
250,000.00
I = 4% per month

1 2 3 4 5 6 7 8 9 10

RM370,050.00

The weighted average cost of capital represents the average cost of all our funds available in
the firm. The project required an investment around RM590,500.00. So, the 5 members of
company have to provided initial model of RM56,750.00. Another balance of RM 250,000.00
is loan from bank. Assume our company’s beta is 2.4, the cost of debt is 7% and the effective
income tax rate is 0.35.

λ = 250000/(590500 )=0.42

ἰb = 0.07

ea = RF+βS(RM-RF)

=0.02+2.4(0.08)

=0.212

t = 0.35

WACC = λ (1-t) ἰb+(1-λ)ea

= 0.42(1-0.35)(0.07)+(1-0.3)(0.212)

= 0.168