QUESTION 4 Limbungan Berhad is in the process of analyzing its investment opportunities. Information on the investment opportunities and capital structure are given below. Source of capital Weight (%) Long term debt Preferred stock 40 Common stock 40 Total 100 20 Investment opportunity Alpha Park Beta Height Gamma Hill IRR (%) 9 12 11 Initial Investment (RM) 1.000.000 4,000,000 2,500,000 The cost of debt, preferred stock, and common equity for Limbungan are as follows: The firm can raise an unlimited amount of debt by selling RM1,000 par value, 6 percent coupon that mature in 10 years. The bond can be sold at a discount of RM40 per bond and floatation cost of RM10 will be incurred. The firm can sell 8 percent preferred stock at its RM100 par value. The cost of issuing the stock is estimated to be RM3 per share. However, if the stock issued is more than RM2,000,000 the floatation cost will be RM10. The firm expects to have RM1,000,000 of retained earnings available in the coming year. Once these retained earnings are exhausted, the firm will use new common stock as financing. The firm's common stock current market price is RM12 and the expected dividend for next year is RM0.90. If new stocks are issued, these would entail a floatation cost of RM1 per share and the stocks also have to be under-priced by RM1. The firm's dividends have been growing at an annual rate of 6 percent. Assume that the company is taxed at 30 percent. 1. Calculate the specific cost of each source of financing ii. Determine the break-even point associated with the firm's financial situation. il. Calculate the weighted average cost of capital for Limbungan iv. Draw the firm's weighted marginal cost of capital (WMCC) schedule and identify which investments should Limbungan undertake. (20 marks)