1. Dundee Berhad is evaluating its cost of capital based on various alternative financing arrangements. It expects to be able to issue new debt at par with a coupon rate of 8 percent and to issue new preference share with a dividend of RM2.00 per share at a price of RM30 a share.

The ordinary share is currently selling at for RM25 a share. It expects to pay a dividend of RM1.50 per share next year. Dundee expects dividend to grow at a rate of 5 percent per year and Dundee tax rate is 40 percent.

1. Calculate the cost of debt, cost of preference share and cost of ordinary share (cost after tax).

(10 marks)

2. Based on your answer in (i) above, calculate the WACC for each of the following financial arrangement:

Financing Management	Percentage of New Capital Raised
	Debt	Preferred share	Ordinary share
A	30	10	60
B	50	25	25

(6 marks)

2. Contrast THREE (3) features each of bond, preferred share and ordinary shares.