Bright Future Co. requires an additional capital to finance its expansion plan. The company need to decide on the sources of financing on the options below:

a) Issue 17 years bond which will pay 11 percent coupon. The bond could be sold at RM950 with 8 percent floatation cost, and the corporate tax rate is at 40 percent.

[9 Marks]

[CO2, PO3, C4]

b) Issue preferred stock at par which will pay 8 percent dividend. The cost of issuing is at 5 percent.

[4 Marks]

[CO2, PO3, C4]

c) Issue common stock which will incur 5 percent floatation cost. If the new stock been issued, the company expect the next year dividend will be at RM1.60. The market price of the companys stock is RM29 with growth rate at 5 percent.

[5 Marks]

[CO2, PO3, C4]

d) Based on the answer above, which option would be recommended? Justify your decision.

[2 Marks]

[CO2, PO3, C4]