How to solve

A$.$ As a financial manager of Kudrato Bhd$,$ you are required to measure the cost of

various sources of financing for the purpose of investment decision.

Below is the present capital structure:

Sources of financing:

The bond currently selling at RM$970.$ Floatation cost is estimated to be RM$20.$ The

bond will be matured after $8$ years at RM$1,150.$

The company's ordinary shares currently selling at RM$6.$ Acu Bhd just paid dividend of

RM $1\mathrm{.}30$ per share to its ordinary shareholders. Dividend is expected to grow at a

constant rate of $5\%$ per year. Floatation cost are estimated to be RM $0\mathrm{.}25$ per share.

The company's $1\%$ preference share with par value of RM$100$ is selling at RM$5.$

The new project will cost the company RM$5,000,000.$ Retained earnings available for

capital investments next year amount to RM$1,500,000.$ Tax rate is at $25\%$

Required:

a$.$ Compute the cost of:

i$.$ After$-$tax cost of debt.

ii$.$ Internal equity.

iii. External equity.

iv$.$ Preference shares.

b$.$ Determine the maximum amount of capital expenditure that the company can

undertake without issuing new ordinary shares.

c$.$ Determine the firm's weighted average cost of capital.