a. As a trainee attached to the Finance Department of HHH Berhad in Rawang, Matthew has been assigned by Mr. Ahmad Mahmood, his industrial advisor on an assignment related to the sources of financing. HHH company is currently trying to raise some funds to finance an investment project. There are several sources of financing available for the company Matthew suggests to his supervisor to raise capital in order to finance the cost of the projects with minimum cost. REQUIRED: Compute the costs for each of the sources of financing: i. The retained earnings is RM4.2 million. The price of the common stock is RM48.00 per share, and the expected dividend this coming year should be RM2.80, increasing thereafter at a 5 percent annual growth rate. The corporation's tax rate is at 29 percent. [2 marks] ii. New common stock issue paid a RM2.66 dividends last year. The company's dividends per share should continue to increase at a 5 percent growth rate into the indefinite future. The market price of the stock is currently RM 48.00, however, flotation costs of RM4.50 per share are expected if the new stock is issued. [2 marks] iii. A preferred stock selling for RM55.00 with an annual dividend payment of RM6.00. The flotation cost will be RM7.50 per share. The company's marginal tax rate is 29 percent. [2 marks] iv. A RM1,000.00 par value bond with a market price of RM980.00 and a coupon interest rate of 11 percent. Flotation costs for a new issue would be approximately 5.5 percent of market price. The bonds mature in 15 years, and the marginal [3 marks] iv. Based on the computation, which sources should be considered to be taken by the manager? [1 mark] b. Aliff Trading Berhad is a publicly held company located in Rawang, Selangor. The company operates a quite successful chain of cheese products across South East Asia. Currently, the company received two major investment proposals. One of the proposals was issued by the company's domestic manufacturing division, and the other came from choosing any of the proposals, Aliff Trading Berhad needs to raise some funds to finance the investment. The Company's balance sheet is as follows: Currently the company's common stock is selling for a price equal to 2.5 times its book value and the firm's investors require a 12 percent return. The firm's bonds command a yield to maturity of 5.5 percent, and the firm faces a tax rate of 28 percent. At the end of the previous year, Aliff's bonds were trading near their par value. REQUIRED: Based on the scenario, answer the following questions: i. What does Aliff's capital structure look like? [4 marks] ii. What is company's weighted average cost of capital? [1 marks] iii. If Aliff's stock price were to rise such that it sold at 3 times its book value and the required rate is increased to 13 percent, what would the firm's weighted average cost of capital be (assuming the cost of debt and tax rate do not change)? [5 marks] a. As a trainee attached to the Finance Department of HHH Berhad in Rawang, Matthew has been assigned by Mr. Ahmad Mahmood, his industrial advisor on an assignment related to the sources of financing. HHH company is currently trying to raise some funds to finance an investment project. There are several sources of financing available for the company Matthew suggests to his supervisor to raise capital in order to finance the cost of the projects with minimum cost. REQUIRED: Compute the costs for each of the sources of financing: i. The retained earnings is RM4.2 million. The price of the common stock is RM48.00 per share, and the expected dividend this coming year should be RM2.80, increasing thereafter at a 5 percent annual growth rate. The corporation's tax rate is at 29 percent. [2 marks] ii. New common stock issue paid a RM2.66 dividends last year. The company's dividends per share should continue to increase at a 5 percent growth rate into the indefinite future. The market price of the stock is currently RM 48.00, however, flotation costs of RM4.50 per share are expected if the new stock is issued. [2 marks] iii. A preferred stock selling for RM55.00 with an annual dividend payment of RM6.00. The flotation cost will be RM7.50 per share. The company's marginal tax rate is 29 percent. [2 marks] iv. A RM1,000.00 par value bond with a market price of RM980.00 and a coupon interest rate of 11 percent. Flotation costs for a new issue would be approximately 5.5 percent of market price. The bonds mature in 15 years, and the marginal [3 marks] iv. Based on the computation, which sources should be considered to be taken by the manager? [1 mark] b. Aliff Trading Berhad is a publicly held company located in Rawang, Selangor. The company operates a quite successful chain of cheese products across South East Asia. Currently, the company received two major investment proposals. One of the proposals was issued by the company's domestic manufacturing division, and the other came from choosing any of the proposals, Aliff Trading Berhad needs to raise some funds to finance the investment. The Company's balance sheet is as follows: Currently the company's common stock is selling for a price equal to 2.5 times its book value and the firm's investors require a 12 percent return. The firm's bonds command a yield to maturity of 5.5 percent, and the firm faces a tax rate of 28 percent. At the end of the previous year, Aliff's bonds were trading near their par value. REQUIRED: Based on the scenario, answer the following questions: i. What does Aliff's capital structure look like? [4 marks] ii. What is company's weighted average cost of capital? [1 marks] iii. If Aliff's stock price were to rise such that it sold at 3 times its book value and the required rate is increased to 13 percent, what would the firm's weighted average cost of capital be (assuming the cost of debt and tax rate do not change)? [5 marks] a. As a trainee attached to the Finance Department of HHH Berhad in Rawang, Matthew has been assigned by Mr. Ahmad Mahmood, his industrial advisor on an assignment related to the sources of financing. HHH company is currently trying to raise some funds to finance an investment project. There are several sources of financing available for the company Matthew suggests to his supervisor to raise capital in order to finance the cost of the projects with minimum cost. REQUIRED: Compute the costs for each of the sources of financing: i. The retained earnings is RM4.2 million. The price of the common stock is RM48.00 per share, and the expected dividend this coming year should be RM2.80, increasing thereafter at a 5 percent annual growth rate. The corporation's tax rate is at 29 percent. [2 marks] ii. New common stock issue paid a RM2.66 dividends last year. The company's dividends per share should continue to increase at a 5 percent growth rate into the indefinite future. The market price of the stock is currently RM 48.00, however, flotation costs of RM4.50 per share are expected if the new stock is issued. [2 marks] iii. A preferred stock selling for RM55.00 with an annual dividend payment of RM6.00. The flotation cost will be RM7.50 per share. The company's marginal tax rate is 29 percent. [2 marks] iv. A RM1,000.00 par value bond with a market price of RM980.00 and a coupon interest rate of 11 percent. Flotation costs for a new issue would be approximately 5.5 percent of market price. The bonds mature in 15 years, and the marginal [3 marks] iv. Based on the computation, which sources should be considered to be taken by the manager? [1 mark] b. Aliff Trading Berhad is a publicly held company located in Rawang, Selangor. The company operates a quite successful chain of cheese products across South East Asia. Currently, the company received two major investment proposals. One of the proposals was issued by the company's domestic manufacturing division, and the other came from choosing any of the proposals, Aliff Trading Berhad needs to raise some funds to finance the investment. The Company's balance sheet is as follows: Currently the company's common stock is selling for a price equal to 2.5 times its book value and the firm's investors require a 12 percent return. The firm's bonds command a yield to maturity of 5.5 percent, and the firm faces a tax rate of 28 percent. At the end of the previous year, Aliff's bonds were trading near their par value. REQUIRED: Based on the scenario, answer the following questions: i. What does Aliff's capital structure look like? [4 marks] ii. What is company's weighted average cost of capital? [1 marks] iii. If Aliff's stock price were to rise such that it sold at 3 times its book value and the required rate is increased to 13 percent, what would the firm's weighted average cost of capital be (assuming the cost of debt and tax rate do not change)? [5 marks] a. As a trainee attached to the Finance Department of HHH Berhad in Rawang, Matthew has been assigned by Mr. Ahmad Mahmood, his industrial advisor on an assignment related to the sources of financing. HHH company is currently trying to raise some funds to finance an investment project. There are several sources of financing available for the company Matthew suggests to his supervisor to raise capital in order to finance the cost of the projects with minimum cost. REQUIRED: Compute the costs for each of the sources of financing: i. The retained earnings is RM4.2 million. The price of the common stock is RM48.00 per share, and the expected dividend this coming year should be RM2.80, increasing thereafter at a 5 percent annual growth rate. The corporation's tax rate is at 29 percent. [2 marks] ii. New common stock issue paid a RM2.66 dividends last year. The company's dividends per share should continue to increase at a 5 percent growth rate into the indefinite future. The market price of the stock is currently RM 48.00, however, flotation costs of RM4.50 per share are expected if the new stock is issued. [2 marks] iii. A preferred stock selling for RM55.00 with an annual dividend payment of RM6.00. The flotation cost will be RM7.50 per share. The company's marginal tax rate is 29 percent. [2 marks] iv. A RM1,000.00 par value bond with a market price of RM980.00 and a coupon interest rate of 11 percent. Flotation costs for a new issue would be approximately 5.5 percent of market price. The bonds mature in 15 years, and the marginal [3 marks] iv. Based on the computation, which sources should be considered to be taken by the manager? [1 mark] b. Aliff Trading Berhad is a publicly held company located in Rawang, Selangor. The company operates a quite successful chain of cheese products across South East Asia. Currently, the company received two major investment proposals. One of the proposals was issued by the company's domestic manufacturing division, and the other came from choosing any of the proposals, Aliff Trading Berhad needs to raise some funds to finance the investment. The Company's balance sheet is as follows: Currently the company's common stock is selling for a price equal to 2.5 times its book value and the firm's investors require a 12 percent return. The firm's bonds command a yield to maturity of 5.5 percent, and the firm faces a tax rate of 28 percent. At the end of the previous year, Aliff's bonds were trading near their par value. REQUIRED: Based on the scenario, answer the following questions: i. What does Aliff's capital structure look like? [4 marks] ii. What is company's weighted average cost of capital? [1 marks] iii. If Aliff's stock price were to rise such that it sold at 3 times its book value and the required rate is increased to 13 percent, what would the firm's weighted average cost of capital be (assuming the cost of debt and tax rate do not change)? [5 marks]