A company finances its operations with 50 percent debt and 50 percent equity. Its net income is RM30 million and it has a dividend payout ratio of 20 percent. Its capital budget is RM40 million this year. The interest rate on companys debt is 10 percent and the companys tax rate is 40 percent. The companys common stock trades at RM66 per share, and its current dividend of RM4 per share is expected to grow at a constant rate of 10 percent a year. The flotation cost of external equity, if issued, is 5 percent of the dollar amount issued.

i) Will the company have to issue external equity? (4 marks)

ii) What is the companys weighted average cost of capital (WACC)? (5 marks)

iii) What is the function of WACC