Sendayu Corporation is considering to invest in a new project. The company has the following capital structure:

Source of Capital Market Value (RM)

Bond 180 000

Preferred shares 70,000

Common shares 750,000

Total 1,000,000

Bond

The company estimate that it can issue RM1,000 par value bonds that pay 10 percent coupon rate annually and will mature in 10 years. The bond is sold at a price of RM980. The tax rate is 30 percent.

Preferred Shares

The company can issue preferred shares at RM100 per share which pays a constant dividend of RM5 per share. Flotation costs will be RM3.50 per share.

Common Shares

The common shares are currently sell at RM80 per share. The company is expected to pay dividends of RM6 per share (D1 = RM6.00) and grow at a constant rate of 6 percent. The flotation cost will be RM7.

Based on the information given, calculate:

(a) Weights for each source of capital.

(6 marks)

(b) Cost of preferred shares.

(4 marks)

(c) Cost of common shares.

(5 marks)

(d) Cost of debt after tax.

(6 marks)

(e) Weighted Average Cost of Capital (WACC).

(4 marks)