Currently owned by the famous Elon Miskin, Outerspace Motorbike is a public listed company planning to invest in a new p

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Currently Owned By The Famous Elon Miskin Outerspace Motorbike Is A Public Listed Company Planning To Invest In A New P 1 (76.52 KiB) Viewed 34 times

Currently owned by the famous Elon Miskin, Outerspace Motorbike is a public listed company planning to invest in a new project in Indonesia. Total investment is capped at Rp. 750 billion. The owner and the CFO plan to finance the upcoming project by using the optimal combination of bonds and equity. Thus, the company plan to issue new bond for this new project in amount of Rp. 400 billion. The company has outstanding bond matured in 5 years with Yield to Maturity (YTM) of 9.5%. The applicable tax rate is 25%. In addition, existing stockholders of the company plan to inject Rp. 350 billion in equity capital for this project. The CFO of the company helps the owner in calculating the cost of equity using CAPM (Capital Asset Pricing Model) and the company come up with 20% required rate of return. a) Based on this information, calculate the cost of capital (WACC) of the new project. b) Based on the case, why is cost of capital (WACC) very important indication for Financial Budgeting in a corporation? You should provide your analysis in at least 300 words essay.