Naruto Bakery has a capital structure consisting of: 42,000 issued and paid-up ordinary shares RM105,000 5,000 issued and paid-up 10% Preference shares RM15,000 8% Bonds (10-year maturity) RM30,000 The balance of retained earning as at 1 January 2021 was RM75,000. The market price per unit of the companys financial instruments are as follows: Ordinary shares : RM2.50 (last dividend paid was RM0.50; growth rate is 5% Preference shares : RM3.00 8% Bonds : RM890.00 (par value RM1,000) The company is considering to invest in new project worth RM80,000. The floatation cost to sell more shares and bonds are 5%. The corporate tax rate 25%.

a) The companys cost of capital if they choose to undertake the project. [7 marks]