1 a. Suppose that an internet-based program, Novus, wants to raise $10 million to expand its business operations. Describe how Novus can raise these funds directly through each of the follow options: issuing stock, issuing bonds, or obtaining a bank loan. Compare and contrast these three options. (10 marks) b. The investment, dividend and financing decisions are interrelated. Discuss their relationship. (5 marks) c. With example, describe the concept of right issue. (5 marks) d. Zhen Yi Computers has an outstanding issue of bond with a par value of $1,000, paying 12 percent coupon rate semi-annually. The bond was issued 25 years ago and has 5 years to maturity. What is the value of the bond assuming 14 percent rate of interest? (5 marks) Question 2 Telemax Bhd is an international communication company with its main office situated in Malaysia. To expand its existing business, the directors of Telemax Bhd are considering launching a new communication tower near Dungun. The company is expected to invest RM1.5million. In the past, dividend was paid once a year and the payments for the last five years are as follows: Year 2007 2008 2009 2010 2011 Dividend per share 21 sen 22 sen 24 sen 25 sen 27 sen Apart from the details of the dividends, Telemax Bhd has also provided its earnings per share and book value of equity for the last five years as below: Year 2007 2008 2009 2010 2011 Earnings per share 42 sen 44 sen 48 sen 50 sen 54 sen Book value of equity per share RM3.35 RM3.85 RM3.90 RM3.50 RM3.80 The market price of the share as at 31 December 2011 is RM4.50 ex-dividend. There are 12 million shares in issue. Telemax Bhd currently has in issue RM1,600,000 6% irredeemable debenture. The current market price of this debenture is RM105 ex-interest, and the interest is payable annually on 31 December. The company also has preferred shares that pay dividend of 12 sen and the market price is RM1.02 per share. The number of preferred shares in issue is 900,000. Required: a. To estimate the cost of equity for Telemax Bhd using the following growth methods: i. Past dividend method (7 marks) ii. Gordon's growth method. (7 marks) b. To estimate the cost of debt and cost of preferred share. (7 marks) c. To calculate the weighted average cost of capital (WACC) using the market value basis. (4 marks)