Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Awan Biru Technology Bhd is considering investing in a new project and has the following capital structure: Awan Biru Technology Bhd has three alternatives to

Awan Biru Technology Bhd is considering investing in a new project and has the following capital structure:

Awan Biru Technology Bhd has three alternatives to finance its long-term financing

  • The firm has 17 percent cost of debt before tax. The corporate taxes are announced at 25 percent.
  • A preferred share issues at RM125 per share which pays an annual dividend of RM4.25 per share. The current price of preferred share is RM99.50.
  • The common shares are currently selling at RM105 per share. The firm paid a dividend of RM5.75 per share last year. This dividend is expected to grow at a constant rate of 3.5 percent per year. The flotation cost is valued at RM6.25.

Based on the information below, calculate:

i. Cost of debt (kd).

ii. Cost preferred share (kps).

iii. Cost of common share (kcs).

iv. The weighted for each source of capital.

v. Weighted Average Cost of Capital (WACC).

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Risk Manager Handbook

Authors: Philippe Jorion, Global Association Of Risk Professionals

5th Edition

0470479612, 978-0470479612

More Books

Students also viewed these Finance questions