Question 1 - Show your workings. a. Zeb's Corporation issued bonds on January 1, 2010. The bonds had a coupon rate of 5.5%, with interest paid annually. The face value of the bonds is RM1,000 and the bonds mature on January 1, 2021. What is the value of Zeb's Corporation bond on January 1 , 2012 , to an investor with a required return of 7% ? (2 Marks) Based on your answer in (a.), what will happen to Zeb's bond value if the coupon rate is more than the required rate of return? (2 Marks) c. Zeb's Corporation needs to raise up its capital to RM100 million to expand its business. It plans to issue 20 million shares with a market value of RM3.00 per share, and the remaining of RM40 million will be a debt financing through bonds. The par value and market value of each bond is RM1,000. The bonds pay annual interest before tax of 7%. The equity beta of firm is 1.4. The yield on risk free investment is 3% per year and the equity risk premium is approximately at 12.5% per year. The firm pays taxation at the annual rate 30%. From the above information, as a finance manager, you are required to calculate: i. the after-tax cost of debt. (2 Marks) ii. the cost of firm's equity. (3 Marks) iii. the weighted average cost of capital based on your answers in part (i) and (ii). (5 Marks) d. Given Zeb's Corporation price of share is RM15 per share, calculate its cost of capital if the company wants to issue new shares with a flotation cost at RM2.50. The company paid out a dividend to the investors last year at RM2 for each share and its expected growth is 10%. (6 Marks) (Total: 20 Marks)