Q2 Garment Incorporated (GI) is evaluating its cost of capital under new alternative financing arrangements. Under the new financing arrangement, GI expects to be able to issue new debt at par with a coupon rate of 8% and to issue new preferred stock at RM2.50 a share and dividend at RM25 a share. The common stock of GI is currently selling for RM20.00 a share. GI expects to pay a dividend of RM1.50 per share next year. Market analysts foresee a growth in dividends is at a rate of 5% per year. Corporate tax rate is 35%. Prior to consultation with investment bankers, you as the GI corporate strategy manager is required to advice the company on the effect to GI' costs of capital as a result of the new financing. You have learned the weighted average cost of capital model, WACC = (kd (1-T) x Wd) + (kes x Wcs)+(kps x Wps) could be adopted to evaluate the expected new cost of capital. Two alternatives, A and B of capital structure are identified as follow: Alternative A: 45% Debt, 5% preferred stock and 50% common stock Alternative B: 30% Debt, 5% preferred stock and 65% common stock (a) (b) Evaluate the best alternative which gives the lower cost of capital for the company. (10 marks) In most cases, the required rate of return on equity is always greater than the required rate of debt. Discuss TWO (2) justifications of the statement (10 marks) (c) Using answer in Q2(a), Recommend with justifications the minimum required internal rate of return (IRR) for the company after the new financing is implemented. 15 mare