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QUESTION 3 (20 MARKS) (a) ZED International is issuing a RM2,000.00 par value bond that pays 8 percent annual interest and matures in 10 years. Investors are willing to pay RM1,800,00 for the bond. Floatation costs will be 4 percent of market value. The Company is in a 20 percent tax bracket. What will be the firm's after-tax cost of debt on the bond? [4 marks] (b) Corporation Alpha sells common stock for RM50.00. The floatation cost for new issue of stocks will be 5 percent. The company pays 50 percent of its earnings in dividends, and a RM4 dividend was recently paid. Earnings per share 5 years ago were RM50.00. Earnings are expected to continue to grow at the same annual rate in the future as during the past 5 years. The tax rate is 25 percent. Calculate; i. Internal common equity [4 marks] ii. External common equity [4 marks) (c) Traffold Enterprises is a publicly held company located in Mersing, Johor. The firm began as a small tool and die shop but grew over its 35-year life to become a leading supplier of metal fabrication equipment used in the farm tractor industry. At the close of 2009 the firm's balance sheet appeared as follows: 1540,000.00 nts Receivable 580,000.00 ories 400,000.00 erm debt 590,000.00 Property, Plant & 955.000.00 on equity 885,000.00 Equipment Assets 475.000.00 lebt and equity 475,000.00 At present, the firm's common stock is selling for a price equal to its book value, and the firm's bonds are selling at par. Crawford's managers estimate that the market requires a 15 percent return on its common stock, the firm's bonds command a yield to maturity of 8 percent, and the firm faces a tax rate of 34 percent. i. What is Traffold's weighted average cost of capital? (4 marks) ii. If Traffold's stock price were to rise such that it sold at 1.5 times book value, causing the cost of equity to fall to 13 percent, what would the firm's cost of capital be (assuming the cost of debt and tax rate do not change)? (4 marks)