Sapura Ltd has a capital structure that consists of a $3,000,000 12 years bond with a coupon rate of 8% and a face value of $1000. The required rate of return of the bond is 7%. The company currently also has 5,000,000 common stocks which are priced in the market at $45.00. Dividends on common stock are currently paid at $3 per share and are expected to grow at a constant rate of 4 percent. The flotation cost on new issues of common stock is 10 percent. New bonds would be privately placed with no flotation cost. The interest on bonds is paid annually. The companys tax rate is 40 percent.

Required:

a) Determine the intrinsic price of the bond if the bond pays interest annually

b) Calculate the cost of funding the following financial instruments:

i. Cost of bond

ii. Cost of internal equity

iii. Cost of new common stock