PART C QUESTION 1 QUESTION 1 Carliep Sdn. Bhd. decided to invest in a new project costing RM17 million. The company plans to maintain its' optimal capital structure as follows: RM 5% Debt 7% Preferred Stock Common Stocks Retained Earnings To finance the new project, Board of Directors of Carliep Sdn. Bhd. has agreed to issue the following bonds and equity: 1. RM2,500,000 of the retained eamings has allocated for re-investment purposes. 2. Issue a corporate bond at a premium of 7% from the par value of RM1,000. The floatation cost is 5% of the issued value. The corporate bonds can be redeemed at a maturity period of 6 years at par value. Required: 3. Issue preference shares at a 5% discount. The flotation cost on new preference shares is charged at 3% of the issuing price. The nominal value of preference share is RM100. 4,500,000 7,500,000 14,000,000 4. Issue new common shares which are currently sold at RM15 per share. The flotation cost is 5% on the market value. Dividend for next year will be RM2.50 per share and dividends are expected to grow at a constant rate of 5% per annum for the foreseeable future. The corporate tax rate is 24%. a. Calculate the after-tax cost of: 4,000,000 30,000,000 i.Debt ii.Preference shares iii.Internal equity iv.New ordinary shares CS Scanned with CamScanner (13 marks) b. Based on the maximum amount of capital expenditure and full utilization of its retained earnings, explain whether the company has sufficient capital to invest in the project. (4 marks) c. Calculate the weighted average cost of capital if the company wishes to undertake the new project. (3 marks) (Total: 20 marks) PART C QUESTION 1 QUESTION 1 Carliep Sdn. Bhd. decided to invest in a new project costing RM17 million. The company plans to maintain its' optimal capital structure as follows: RM 5% Debt 7% Preferred Stock Common Stocks Retained Earnings To finance the new project, Board of Directors of Carliep Sdn. Bhd. has agreed to issue the following bonds and equity: 1. RM2,500,000 of the retained eamings has allocated for re-investment purposes. 2. Issue a corporate bond at a premium of 7% from the par value of RM1,000. The floatation cost is 5% of the issued value. The corporate bonds can be redeemed at a maturity period of 6 years at par value. Required: 3. Issue preference shares at a 5% discount. The flotation cost on new preference shares is charged at 3% of the issuing price. The nominal value of preference share is RM100. 4,500,000 7,500,000 14,000,000 4. Issue new common shares which are currently sold at RM15 per share. The flotation cost is 5% on the market value. Dividend for next year will be RM2.50 per share and dividends are expected to grow at a constant rate of 5% per annum for the foreseeable future. The corporate tax rate is 24%. a. Calculate the after-tax cost of: 4,000,000 30,000,000 i.Debt ii.Preference shares iii.Internal equity iv.New ordinary shares CS Scanned with CamScanner (13 marks) b. Based on the maximum amount of capital expenditure and full utilization of its retained earnings, explain whether the company has sufficient capital to invest in the project. (4 marks) c. Calculate the weighted average cost of capital if the company wishes to undertake the new project. (3 marks) (Total: 20 marks)