The board of directors has agreed to allocate the dividend pay-out ratio is 50% for next year and put aside the remaining balance of the retained earnings for re-investment purposes. The corporate tax rate is 24%.Required:a. Calculate the components of cost of capital for:i. Bondsii. Preference sharesiii. Retained earningsiv. New ordinary shares(10 marks)b. Determine the weighted average cost of capital if the company wants to undertake this project.(3 marks)c. Calculate the number of bonds to be issued if the company plans to undertake the project.

QUESTION 2 A. Sunshine End is considering diversifying into a new product line and needs to purchase new machines from a manufacturer in Sapporo. Japan. The cost of the new machines is amounting to RM2.950.000. The additional cost incurred on the installation and transportation is RM30.000 and RM20.000 respectively. The financial manager is required to estimate the possible cost 01 raising capital for the new machines. The company's optimal capital stmcture is as follows: Bonds Preference shares Ordina shares Retained earnin _s To finance the purchase ol new machines. the company plans to issue: 1. The 6% bonds with a nominal value of RM1.000 at not issue price after otation cost of RM970. No redemption period for this band. A flotation cost of 3% on the par value is charged on the new issue of the bonds. 2. The 8% preference shares with a nominal value of RM100 can be issued at RM110. An additional fee of RM5.50 must be paid to the administrator. 3. The average share price for last year is below RM5.00. Nevertheless, a better market outlook for the year has improved the ordinary shares currently traded at RM5.20 per share. Next year's dividend is RMO.30 and ft is expected to grow at a constant rate of 6% per year for a foreseeable future. The underwriting cost incurred is RMO.20 per share