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Gordon Company is estimating an optimal capital structure for a new project. The current cost of financing is as follows: Source Weight Range (RM) Before/After
Gordon Company is estimating an optimal capital structure for a new project. The current cost of financing is as follows:
Source | Weight | Range (RM) | Before/After Tax Cost (%) |
Bond | 40 | 0-500,000 | Before tax cost = 5.00 |
Above 500,000 | Before tax cost = 8.00 | ||
Preferred Share | 20 | 0-700,000 | 10.00 |
Above 700,000 | 13.00 | ||
Common Share | 40 | 0-1,000,000 | 18.00 |
Above 1,000,000 | 20.00 |
Assume tax cost of 35%, you are required to answer the following: i) Calculate the after-tax cost for bond
ii) Calculate breaking points for preferred share iii) Determine the firms weighted cost of capital
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