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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).

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