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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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